What you will learn in this lesson
In this lesson you will learn how the Consumer Price Index (CPI) is built from a "basket" of goods and services, how monthly inflation, year over year (point to point) inflation and the trailing 12 month average differ from one another, and why the number Iran's Statistics Center announces sometimes does not match the Central Bank's own figure. This is not just an academic statistic: the announced inflation rate is the basis for the annual adjustment of the minimum wage and pensions, and it is also used to measure the "real return" on bank deposits (see the lesson on bank deposits and real interest).
Definitions
The Consumer Price Index, or CPI, is a number that tracks the cost of buying a fixed "basket" of goods and services over time. This basket contains dozens of categories, such as food, housing (rent), clothing, transport, communications and health care, each carrying a "weight" based on its real share of household spending. An ordinary household's basket puts a large share of its spending on housing, water, electricity and gas, and another share on food; those weights decide which price increases move the final inflation number the most.
The "index number" shows how many times more expensive that same basket has become relative to a "base year" (the year whose index value is defined as 100). For example, if the index has reached 700, the same basket now costs roughly seven times what it cost in the base year. The "inflation rate" is nothing more than the percentage change in this index number over a given period, not the price level itself.
The mechanism: from the basket to the inflation rate
Each month, Iran's Statistical Center collects the prices of thousands of goods and services across the country's cities and villages, combines them using each category's weight, and produces a single national index number. Comparing this number across different time windows produces three distinct rates, each answering a different question:
- Monthly inflation: the percentage change in the index versus just one month earlier. It is the fastest way to see prices accelerating or slowing in the short term, but on its own it does not show the annual trend.
- Point to point (year over year) inflation: the percentage change in the index versus the same month one year earlier. It tells you how much more a household paid for the same basket compared with exactly a year ago, and it is usually the figure quoted as "today's inflation" in the news.
- Average (annual or trailing 12 month) inflation: the average index level over the last 12 months compared with the average over the 12 months before that. Because it averages over a full year, it smooths out one or two month swings and is better suited to long term comparisons.
These three figures can move in different directions at the same time. For example, monthly inflation can slow down while point to point inflation stays high and keeps rising, because its base of comparison (the same month last year) is a different number. That is why it is never safe to read only one of the three rates and draw a conclusion about the overall inflation trend.
A worked example
Suppose a simple basket contains only two items: bread and housing rent. In a hypothetical "base year," buying this basket each month cost 100,000 tomans, so we set its index at 100. A year later, the same basket costs 180,000 tomans. The new index becomes 180 (180,000 divided by 100,000, multiplied by 100), so the year over year inflation for that month is 80 percent (180 minus 100, divided by 100).
Now suppose that the following month the same basket rises to 186,000 tomans. The index reaches 186, so monthly inflation is only 3.3 percent (the change from 180 to 186), while year over year inflation still sits near 80 to 90 percent, because its base of comparison is a year earlier, not a month earlier. This is exactly the trap of reading only one of these rates: one "calm" month on its own does not mean annual inflationary pressure has eased.
In Iran's market
Two official bodies in Iran publish inflation figures, each with its own methodology and geographic coverage: the Statistical Center of Iran, which reports the country's official statistics for a nationwide basket covering both urban and rural households, and the Central Bank of the Islamic Republic of Iran, which publishes its own consumer price index mainly for urban areas. Because the basket, the category weights and the geographic coverage of the two reports are not identical, their numbers for the same month differ slightly; that difference does not mean one of the two is wrong, it is the result of different methodology.
For example, in the Iranian month of Mordad 1405 (roughly late July to late August 2026), the Statistical Center of Iran announced the country's year over year inflation at 89 percent and its annual (trailing 12 month) inflation at 69.9 percent; the same month, the Central Bank reported urban year over year inflation at 84.4 percent and annual inflation at 65.1 percent (source: Statistical Center of Iran, via Donya-e-Eqtesad, August 27, 2026; the two-institution comparison via EcoIran, August 30, 2026). The Statistical Center also reported that same month that the ANNUAL inflation gap between household expenditure deciles had reached 10.7 percentage points: the second (lower income) decile faced annual inflation near 78.3 percent, a heavier burden than the tenth (higher income) decile's roughly 67.6 percent, while the nationwide annual average stood at 69.9 percent. This means the "national average inflation number" does not necessarily reflect what every household experiences.
Common mistakes
- Confusing monthly inflation with year over year inflation: a figure like "3 percent" could be the monthly rate, not the annual one; always check which rate is being quoted.
- Assuming the index number itself is the absolute price level: the index only shows change relative to the base year, not the actual price of any specific item.
- Assuming inflation is the same for every household: as the decile gap shows, lower income households typically spend a larger share of their basket on food, so they feel more pain during periods of rising food prices.
- Believing that a gap between the Statistics Center's and the Central Bank's numbers means one of them is "right" and the other "wrong": the gap comes from differences in basket, weighting and geographic coverage, not from either institution making a deliberate error.
Summary
Inflation is nothing more than the percentage change in the price index of a fixed basket of goods and services, and that percentage can be read monthly, year over year, or as a trailing 12 month average, each answering a different question. In Iran, both the Statistics Center and the Central Bank publish this number, but because of methodological differences their figures for a given month differ slightly. To learn more about why inflation erodes the purchasing power of money in the first place, read the lesson "What Is Inflation and Why Does It Erode Purchasing Power?"; to see how inflation connects to liquidity growth, the lesson "Liquidity and the Monetary Base" is a good companion. You can read the latest published Sahmino Academy lesson, "Iran's Neighboring Markets," and the full lesson list is available on the Sahmino Academy page.
