US embassy cable - 05BAGHDAD3163

UNCLAS BAGHDAD 003163 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USAID 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, IZ, ECON Development 
SUBJECT:  IRAQI CONSUMER PRICES ROSE 5.7 PERCENT IN FIRST 
HALF 2005 
 
 
This cable is sensitive but unclassified.  For government 
use only.  Not for internet distribution. 
 
1. (SBU) SUMMARY: Consumer prices increased modestly 
during June by 1 percent and prices are up 5 percent for 
the first half of 2005. The 12-month inflation rate - 
from July 2004 through June 2005 - rose slightly to 37 
percent. Consumer prices may increase more rapidly in the 
second half of 2005 if conditions in 2004 are repeated 
when consumer prices rose approximately 30 percent from 
July through December. END SUMMARY. 
 
2. (SBU) The Ministry of Planning's consumer price index 
indicates that the general level of prices increased 1.0 
percent in June following a decrease of 2.1 percent the 
previous month. The Iraq consumer price index increased 
5.7 percent in the first six months of 2005, up from only 
1.5 percent in the same period of 2004. Relative to 
twelve months earlier, the price level in June had 
increased 37 percent. 
 
3. (SBU) After an inflation spurt in January this year, 
the level of prices fell in February, and through June, 
held steady about 40 percent above the December 2003 
price index. A similar pattern occurred in the first half 
of 2004 but then the price index jumped some 48 percent 
from June 2004 through January 2005. 
 
4. (SBU) Percent changes in components of the COSIT 
consumer price index relative to the preceding month and 
a year earlier are presented in the following table.  It 
also records weights for each commodity class used in 
calculating the index.  In June there was a decline in 
Fuel/electricity prices but a 76 percent increase 
relative to a year earlier.  The weight for this category 
in calculating the index is only 2.1 percent.  There were 
substantial increases in prices of Furniture, Medical 
services, and Miscellaneous items in June, each of which 
also has a comparatively low weight in the consumer price 
index.  Relative to twelve months earlier, both Food and 
Rent, which are heavily weighted, increased about 38 
percent, nearly the same as the 37 percent increase in 
the overall index. 
 
 
Item                         % Increase/(Decrease) 
                              One Month 12 Months Weight 
 
Tobacco/alcohol                    0.5    (0.9)    3.5 
Clothing, fabric, shoes            0.0    10.7     9.7 
Fuel/electricity                  (5.9)   76.4     2.1 
Transportation/communications      0.2    55.1     4.9 
Food                              (0.2)   37.6    63.2 
Furniture                          4.2     9.8     3.1 
Medical services                   4.0    11.8     1.5 
Rent                               2.6    37.8    11.5 
Miscellaneous                      3.1    26.8     0.5 
 
All items                          1.0    37.2   100.0 
 
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COMMENT 
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5. (SBU) COMMENT:  Monthly Iraq CPI statistics through 
June show a comparable leveling to what was observed in 
the first half of 2004.  That the consumer price index 
increased over 5 percent in the first half of 2005 
compared with only 1.5 percent during the comparable year 
earlier period raises concern about inflation, 
particularly should substantial increases in inflation 
that occurred in the last half of 2004 be repeated this 
year. END COMMENT 
 
 
Khalilzad