According to Sedaye Sama News Agency, when assessing economic conditions, attention should not be focused solely on the sources of economic shocks. Ultimately, it is the policy response to those shocks that determines the trajectory of inflation. An economy may experience rising public spending, fluctuating revenues, and pressure on productive capacity, but these developments become broad inflationary instability only when fiscal deficits are financed through excessive monetary expansion.

The key issue is that increasing the money supply does not, by itself, expand the economy’s real productive capacity. When production and supply cannot increase rapidly, additional liquidity mainly fuels nominal demand. Part of the new money flows into the markets for goods and services, while another portion moves into foreign exchange, gold, and other assets. The result is higher prices and stronger inflation expectations.

Monetizing a budget deficit is not limited to direct government borrowing from the central bank. Directed lending through banks, excessive borrowing by the banking sector, the accumulation of government debt, and the transfer of unfunded obligations to financial institutions can all ultimately expand the monetary base and overall liquidity. Therefore, the inflationary impact should be assessed based on the overall outcome of fiscal operations, rather than the legal form of deficit financing.

The greater danger emerges when persistent inflation changes economic behavior. Households become less willing to hold the national currency, businesses adjust prices more frequently, and demand for alternative assets increases. At this stage, inflation expectations are no longer merely a consequence of rising prices—they become a driving force behind continued inflation.

At the same time, inflation raises government expenditures. Higher wages, project costs, and public service expenses require additional funding, widening the budget deficit once again. This creates a vicious cycle in which deficits generate more liquidity, while inflation further enlarges fiscal deficits. The longer this cycle continues, the more difficult and costly it becomes to break.

The solution is not to deny fiscal needs or suspend essential public services, but to adopt a realistic and prioritized budget. Critical expenditures should be protected, while lower-priority or unfunded commitments should be reduced or postponed. Policymakers should also avoid imposing additional financial burdens on banks or relying on non-transparent use of the central bank’s balance sheet.

Ultimately, maintaining monetary stability during periods of heightened risk is not merely a technical concern. High inflation places the greatest burden on wage earners, retirees, and households with limited assets, eroding purchasing power, weakening public confidence, and undermining social stability. For this reason, avoiding the monetary financing of budget deficits should remain one of the fundamental principles of sound economic policymaking.