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Cablegate: Iraq's New-and-Improved Consumer Price Index

VZCZCXRO1460
RR RUEHBC RUEHDA RUEHDE RUEHDH RUEHIHL RUEHKUK
DE RUEHGB #3173/01 3431446
ZNR UUUUU ZZH
R 091446Z DEC 09
FM AMEMBASSY BAGHDAD
TO RUEHC/SECSTATE WASHDC 5670
INFO RUCNRAQ/IRAQ COLLECTIVE
RHEHNSC/NSC WASHDC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

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

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