US embassy cable - 05BAGHDAD3488

UNCLAS BAGHDAD 003488 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USAID 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EAGR, IZ, ECON Development 
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