“Prices have been going up really quickly,” said Hossein, the co-owner of a downtown Tehran shop. “And businesses are suffering. People buy less, so we order less, and our suppliers suffer. It’s a chain reaction.”

“The government says inflation is at twenty percent, but the true figure is at least twice that,” he added. “Imported goods have been rising in price almost daily.”

A housewife doing her afternoon shopping smiled sadly when asked how her family was managing to cope with the newly exorbitant cost of living.

“It’s getting tough,” she said. “But what can we do?”

Not all shopkeepers were willing to go on record about the out-of-control inflation causing hardships for Iran’s 74 million people.

“Our government hasn’t announced anything, and I’m afraid I could say the wrong thing,” said the owner of a small corner shop in south Tehran as the call to evening prayer sounded from a nearby mosque. “I don’t need any problems.”

Western powers and Israel suspect Iran’s nuclear program is aimed at the creation of atomic weapons. Iran has denied this and says it is not seeking an “un-Islamic nuclear weapon.”

Tough new international sanctions against Tehran have complicated Iranian payments for food deliveries at international banks and have caused prices in dollar terms for essentials such as rice, cooking oil and meat to double or even triple in recent weeks. Commodities traders have reported that the Islamic Republic has begun offering barter deals, exchanging gold and oil for food, in a bid to get round the problem.

But the shelves of shops in Tehran remain well-stocked, for now. Items such as British tea and Italian spaghetti were in evidence on a visit to a supermarket on downtown Haft-e- Tir Square. Of course, not everyone can afford to pay for such luxuries.

Salary increases have failed miserably to keep up with the spiraling cost of living, with wages for government employees going up recently by just six percent. Workers at non-government companies have also suffered. Many have simply been dismissed, locals say, and others have found it increasingly hard to feed their families.

“I have a large family and I earn around $500 a month,” said Abdolfazal, a middle-aged worker at the city’s sprawling Grand Bazaar. “This used to be enough to get by on, but the recent price increases mean that we are struggling now.”

“I think the inflation has even affected richer people,” he added.

And twenty-something artist Golshan also said her relatively wealthy family had seen a drop in their living standards.

“Things are getting very, very expensive,” she said, her head covered in accordance with Islamic law as she sat in a trendy Tehran cafe. “And people are getting very, very angry.”

The only people not affected by inflation are the city’s super wealthy.

“Everything is fine in Iran,” smiled Arya, the owner of a local pharmaceutical company, as he leant through the window of his parked white Porsche. “I have a U.S. green card and I make money here and fly to the States to spend it.” Opposite a mural proclaiming “Down with USA!” took up the entire side of a building.

But despite rocketing prices, there is little sign of open discontent in Tehran. The opposition Green Movement attempted to hold its first protest here for a year last week, but security forces were out in force to smother the few demonstrators who risked arrest.

Indeed, an unexpected normalcy reigns on the streets of the Iranian capital. Street traders continue to sell flat bread and soft drinks to rush-hour commuters and the city’s trademark motorcycles weave in and out of Tehran’s notorious traffic jams.

And many ordinary people are seemingly unsure as to whether price increases have been caused by sanctions or ineffective government policies.

“I’m not that interested in politics,” said Abdolfazal. ”I’m not quite sure why prices have shot up. Some people say it’s the sanctions, but others say it is the government’s fault.” Iranian analysts suggest the truth is perhaps somewhere in between.

The price increases come just ahead of March parliamentary elections that are widely viewed as a referendum on President Mahmoud Ahmadinejad’s economic policies. Ahmadinejad has shrugged off the sanctions and told crowds at last weekend’s celebrations for Islamic Revolution Day that the economy was “in good shape.”

He also said Iranians were prepared to make any sacrifice for the sake of the country’s nuclear program, which Tehran says is aimed at the production of peaceful civilian energy.

Among the cheering crowd was a young girl wearing a placard that read “I will become a nuclear scientist.”

And on Saturday, Ahmadinejad raised the stakes even further when he announced major progress in Iran’s nuclear program.

“They tried to prevent us by issuing sanctions and resolutions but failed,” he said.

But spiraling tensions mean that on top of economic hardships, ordinary Iranians may soon face the terrifying prospect of war.

Israel has indicated it will attack Iran if diplomacy and sanctions fail to resolve the issue of Iran’s nuclear program, which it describes as a major threat to its security. The United States has also refused to rule out force.

“I know the West is not joking about our nuclear program,” said a student who gave her name as Azar. “If they consider it to be a threat, they will attack us.”