FOOD PRICE DECREASES PULL IRAQI CONSUMER PRICE

UNCLAS BAGHDAD 003488

SIPDIS

SENSITIVE

STATE PASS USAID

E.O. 12958: N/A
TAGS: ECON EFIN EAGR IZ ECON
SUBJECT: FOOD PRICE DECREASES PULL IRAQI CONSUMER PRICE
INDEX DOWN IN JULY

This cable is sensitive but unclassified. For government
use only. Not for internet distribution.


1. (SBU) SUMMARY: Led by a decline in food prices,
consumer prices fell in July by 2.6 percent.
Nonetheless, inflation remains a concern. The increase
in the consumer price index from July 2004 through July
2005 was 33 percent. A year ago after comparative
stability in the first seven months of the year, consumer
prices increased sharply August through January. The
concern is whether that pattern might be repeated.
END SUMMARY.


2. (SBU) The Ministry of Planning's consumer price index
indicates that the general level of prices decreased 2.6
percent in July following an increase of 1.0 percent the
previous month. The Iraq consumer price index increased
3.0 percent in the first six months of 2005 compared with
2.1 percent in the same period of 2004. Relative to
twelve months earlier, the price level in July had
increased 33 percent.


3. (SBU) The good news is that after an inflation spurt
in January this year, the level of prices has fallen 10
percent, twice the decline that occurred in the same
period a year earlier. Absent seasonal adjustment of the
data, there is a concern whether the over 38 percent in
prices that occurred August 2004 through January 2005
might be repeated during the months ahead.


4. (SBU) A table measuring percent changes in components
of the COSIT consumer price index relative to the
preceding month and a year earlier have been emailed to
NEA/I/ECON Martin. The chart also records weights for
each commodity class used in calculating the index. The
Food weight is extraordinarily high. In July there was a
substantial 12.8 percent decline in Food prices from June
but a 16.9 percent increase relative to a year earlier.
There were moderate increases in prices in most other
categories. The official figures show a small increase
in Fuel/Electricity price in July but a large decrease
over twelve months, a figure that clearly does not count
the burdens on Iraqis of long queues to buy refined oil
products and extended electricity blackouts.


5. (SBU) COMMENT: After a January peak, monthly Iraq CPI
inflation was dramatically reversed through July.
Nonetheless, the CPI was up almost 33 percent from twelve
months earlier. There is concern that slowing inflation
thus far in 2005 is a regular seasonal pattern which
raises the prospect that rapid increase in prices August
through January a year earlier might be repeated this
year.
Khahilizad