Cablegate: Food and Fuel Price Increases in August

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS BAGHDAD 003947

SIPDIS

SENSITIVE

STATE PASS USAID

E.O. 12958: N/A
TAGS: ECON EFIN EAGR IZ
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

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