FOOD PRICE INCREASES CAUSE CONSTERNATION IN THE AFGHAN

UNCLAS KABUL 004007 SIPDIS DEPT FOR SCA/FO, SCA/RA, AND SCA/A DEPT PASS AID/ANE DEPT PASS USTR FOR GERBER AND KLEIN DEPT PASS OPIC FOR ZAHNISER DEPT PASS TDA FOR STEIN AND GREENIP CENTCOM FOR CSTC-A NSC FOR JWOOD TREASURY FOR LMCDONALD, ABAUKOL, BDAHL, AND MNUGENT OSD FOR SHIVERS COMMERCE FOR DEES, CHOPPIN, AND FONOVICH SIPDIS E.O. 12958 N/A TAGS: ECON EAID EFIN AF SUBJECT: FOOD PRICE INCREASES CAUSE CONSTERNATION IN THE AFGHAN GENERAL PUBLIC ¶1. Summary. Prices for household staples have risen across Afghanistan, driven primarily by worldwide increases in prices of key commodities. Even Afghans with "good" jobs have found themselves caught between rising food prices and flat salaries. Price increases are having a negative effect on popular satisfaction with the government. End summary. ¶2. Official Afghan Central Bank statistics, based upon figures for Kabul, show that the end-of-period, year-on-year overall Consumer Price Index rose 9.5 percent between October 2006 and October 2007. Prices of non-food items, such as housing (including rents), electricity and fuels, transportation, health care, and education increased only 2.4 percent in the similar period, suggesting that, while Afghans are feeling the pinch, the country as a whole is not facing significant monetary inflation[O1]. ¶3. The price increases in Afghanistan reflect worldwide trends: global wheat prices are double what they were last year. Additionally, in regard to price indices, the World Bank reports that for the July-September 2007 quarter, compared to the same quarter in 2006, energy rose 7 percent on average, agriculture rose 17 percent, food price rose 27 percent, and the grains price index rose 24 percent. ¶4. Although Cabinet officials regularly try to talk down prices and threaten price controls, the free market is a fact of life in Afghanistan. This is not widely viewed as a universal good; newspaper editorials decry price rises and criticize Ministers for "permitting" price increases to occur. On November 28 a number of MPs called on the Minister of Commerce and Industry to impose price controls and demanded that he appear to answer questions. For his part the Minister has told the embassy that he opposes price controls on key staples, but he has also been widely quoted as saying that food prices should be controlled. (Note: In September, the Charge sent a letter to the Minster of Finance urging the government not to institute price controls.) ¶5. Market basket surveys conducted by Provincial Reconstruction Teams suggest that prices of some consumer staples have risen sharply in the past month. Reporting for the September through November 2007 period from Kunduz and Laghman provinces shows that the price of rice rose 14% in Laghman and the price of sugar there rose almost 75%. Some key prices, however, such as propane and firewood have not changed over the survey period, although all energy prices are high, compared to average incomes. ¶6. In a recent conversation with the Political Counselor, the Governor of Ghazni compared the cost of a market basket of household staples to the average salary of a policeman or soldier, noting that even those with relatively good wage-paying jobs have no margin. Even a modest increase in the price of essentials means some items are no longer affordable. The burden is even heavier on those who do not receive regular wage payments. ¶7. What we hear on the street is that price rises are increasingly hard for Afghans to bear. The difficult fact is that as food prices rise and median incomes remain flat, Afghans will feel increasingly squeezed. This will both increase pressure on the government, while also leading to more popular complaints about the relative invisibility of the billions of dollars in assistance provided by the international community. DELL