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Thu 9 Oct 2008 03:10 PM

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Iran inflation surges to 29%

Fourth-largest oil producer's annual inflation rate jumps in September, stoking discontent.

Iran's annual inflation rate jumped 1.8 percentage points to 29.4 percent in September, Iranian media said on Thursday, highlighting a growing source of discontent ahead of next year's presidential election.

Rising prices and the economic policies of Mahmoud Ahmadinejad are likely to be major issues in the June 2009 election when he is expected to run for a second four-year term as president of the world's fourth-largest oil producer.

"Certainly, inflation is the most important problem the Ahmadinejad government is facing at the moment," one Iranian political analyst, who declined to be named, said.

Consumer prices rose 3.9 percent in the Iranian month that ended on Sept. 21, pushing up the year-on-year rate to 29.4 percent from 27.6 percent, newspapers said, quoting central bank data.

Central bank officials were not immediately available for comment.

Inflation has risen steadily from about 11 percent since Ahmadinejad came to power in 2005 on a pledge to share out the Islamic Republic's oil wealth more fairly.

The ISNA news agency said experts believed the latest surge was in part due to the Muslim fasting month of Ramadan, when some foodstuffs usually become more expensive. Many Iranians invite guests to break the fast in the evenings during Ramadan.

Other countries in the Middle East, including Egypt and Saudi Arabia, are also struggling with double-digit inflation rates. Economists say Iranian inflation has been fuelled by heavy government spending of an influx of petrodollars.

Ahmadinejad has dismissed the criticism, saying rising prices are a global problem and that his government is tackling the issue. Earlier this week he said inflation was decreasing.

New Central Bank Governor Mahmoud Bahmani was last week quoted as saying he would inject $15 billion into the banking system to help boost industrial production, a move economists warned could further stoke price rises.

The Iranian analyst said he still believed Ahmadinejad, who has received public backing from Iran's Supreme Leader Ayatollah Ali Khamenei, was favourite to win the election.

The president is frequently touring the provinces, handing out cash or loans, and is also boasting victory in Iran's nuclear standoff with the West.

"I think he has created a lot of hopes and lot of dependence among rural people," the analyst said.

Iran, which is under UN and US sanctions over its disputed nuclear programme, has been reaping windfall gains from its oil wealth in recent years.

But analysts say surging imports have made it more sensitive to any declines in the price of crude, which has tumbled about $60 a barrel from a peak of $147 in July.

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