IRAQ'S NEW-AND-IMPROVED CONSUMER PRICE INDEX

UNCLAS SECTION 01 OF 02 BAGHDAD 003173 SIPDIS STATE FOR NEA/I/ECON E.O.12958: N/A TAGS: ECON EFIN EAID PGOV PREL IZ SUBJECT: IRAQ'S NEW-AND-IMPROVED CONSUMER PRICE INDEX ¶1. (U) Iraq's Central Office for Statistics and Information Technology (COSIT) has unveiled new consumer price index (CPI) weights. The weights are based upon data collected in the 2007 World Bank-sponsored Household Socio-economic Survey, which included a comprehensive study of household spending habits. The new methodology will also calculate geographic differences in prices at the regional, provincial, and city levels. ¶2. (U) The 2007 CPI basket items and their relative weights vary considerably from those of the current CPI basket, which has been in use since 1993. The 1993 price survey was conducted under Saddam's regime shortly after the conclusion of the 1991 Gulf War and was reported to have taken only three months. Fuel was subsidized and rents were controlled. Cell phone use was minimal, and land line penetration was less than two percent. The 1993 CPI also does not include prices from the Kurdistan Region. NEW BASKET REFLECTS CHANGING IRAQI EXPENDITURES ITEM PERCENTAGE WEIGHT IN BASKET 1993 (%) 2007 (%) ¶1. Food and beverages (non-alcoholic) 62.87 30.06 ¶2. Alcohol and tobacco 3.49 0.72 ¶3. Clothing and shoes 9.65 7.33 ¶4. Housing, water, electricity and fuel 13.69 31.31 (Rent alone 11.59 N/A) ¶5. Housing equipment and maintenance 3.07 6.38 ¶6. Health 1.48 2.31 ¶7. Transportation 4.87 11.09 ¶8. Communications N/A 2.93 ¶9. Recreation and Culture 0.03 1.62 ¶10. Education 0.08 0.99 ¶11. Restaurants 0.30 1.40 ¶12. Miscellaneous 0.47 3.88 TOTAL 100% 100% ¶3. (U) The above data reflects changing Iraqi households' consumption patterns from 1993 to 2007. The new weight for food and non-alcoholic beverages (30.1 percent) is less than half its previous level (62.9 percent),probably because other categories have become relatively more expensive. Alcohol and tobacco consumption has dropped significantly as a percentage of expenditures as well. Fuel and electricity expenses have now been combined with rent, and their total weight has more than doubled from 13.7 to 31.3 percent. [NOTE: The UN estimates Iraq faces a serious housing shortage of about 1.5 million units. Tracking rents may prove more difficult as they will be combined with fuel and electricity, which have been historically volatile. END NOTE.] ¶4. (U) Families are also paying more for services provided by the social system as household healthcare spending is up by 60 percent while education spending is up more than twelve times its previous level. Communication expenditures were negligible in 1993, but make up almost three percent of a family's budget now, primarily due to the advent of cell phones. Recreation and restaurant spending have both increased several times over their 1993 levels, but their combined total accounts for about only three percent of a typical household's budget. COMMENT -------------- ¶5. (U) October 2009 year-on-year core inflation of 5.5 percent and year-on-year headline inflation of -6.4 percent were still calculated using the 1993 price index. COSIT has not yet announced how or when it will transition from the old weights to the new ones and whether previous data will be re-indexed. Nevertheless, the CPI Qand whether previous data will be re-indexed. Nevertheless, the CPI basket overhaul has been long overdue, and should be recalculated every three years. This new data will give public and private decision makers better perspective on how economic trends affect the average Iraqi family, and its implementation and publication will be BAGHDAD 00003173 002 OF 002 a welcome improvement. HILL