US embassy cable - 05BAGHDAD3947

UNCLAS BAGHDAD 003947 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USAID 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, EAGR, IZ, Petrolium, Energy Sector 
SUBJECT:  FOOD AND FUEL PRICE INCREASES IN AUGUST 
RAISE ONE-MONTH INFLATION RATE TO 10.5 PERCENT 
 
 
This cable is sensitive but unclassified.  For government 
use only.  Not for internet distribution. 
 
1. (SBU) SUMMARY: Led by a 78 percent increase in fuel 
and electricity prices and a 12 percent increase in food 
prices, consumer prices rose 10.5 percent in August after 
falling in July by 2.6 percent. The twelve-month increase 
in the index from August 2004 through August 2005 was 42 
percent, up from 33 percent from July 2004 through July 
2005. A year ago after comparative stability in the first 
seven months of the year, consumer prices increased 
sharply August through January.  The concern is that the 
sharp increase in prices in August 2005 may be following 
the year-ago pattern. 
END SUMMARY. 
 
2. (SBU) The Ministry of Planning's consumer price index 
indicates that the general level of prices increased 10.5 
percent in August following a decrease of 2.6 percent the 
previous month. Relative to twelve months earlier, the 
price level in August had increased 42 percent.  A year 
earlier the consumer price index increased 38.5 percent 
August through January and accounted for almost all of 
the annual inflation increase. Iraqi CPI figures cover 
both official and black market prices on items and 
services. 
 
3. (SBU) A table measuring percent changes in components 
of the COSIT consumer price index in August relative to 
the preceding month and a year earlier has been emailed 
to NEA/I/ECON Martin.  The table also records weights for 
each commodity class used in calculating the index. The 
Food weight is extraordinarily high at 63 percent.  In 
July there was a substantial decline in food prices and 
it was the major factor accounting for the decrease in 
the overall index by 2.6 percent. In August food prices 
bounced back and along with major increases in transport 
and communications prices as well as fuel and electricity 
prices were the major contributors to the significant 
percentage gain in the index.  There was an error in last 
month's GOI data with respect to fuel and electricity 
prices that had not decreased relative to a year earlier 
but rather had risen.  A corrected July table is also 
being e mailed to NEA/I/ECON. 
 
4. (SBU) COMMENT:  The Iraq consumer price index 
increased 13.8 percent during the first eight months of 
2005 well above the 5.8 percent increase in the consumer 
price index during the same months in 2004.  There is 
heightened concern that the price level stability of the 
first seven months of 2005 might again be followed by 
rapid price increases August through January as occurred 
in 2004.  We note the year-to-year 179 percent increase 
in fuel and light costs, a sensitive item as the GOI 
gears up for reducing fuel price subsidies in 2006. 
Khahilizad