VZCZCXYZ0009
RR RUEHWEB

DE RUEHDM #0890/01 2421403
ZNR UUUUU ZZH
R 301403Z AUG 07
FM AMEMBASSY DAMASCUS
TO SECSTATE WASHDC 4118

UNCLAS DAMASCUS 000890 
 
SIPDIS 
 
SIPDIS 
 
NEA/ELA; DOC FOR 4520/IEP/ANESA/ONE/NWIEGLER 
 
E.O. 12958: N/A 
TAGS: ECON SY
SUBJECT: INFLATION CONTINUES TO AFFLICT SYRIA 
 
REF: DAMASCUS 403 
 
 ¶1. (SBU) Summary:  The IMF recently estimated average 
inflation in Syria at eight percent, close to the rate 
estimated by Post's 2006-7 price survey.  This rate does not 
tell the whole story, however, as black market prices and 
subsidies mask inflation in Syria.  Local Syrian economists 
take issue with the IMF estimate and assert that while 
inflationary pressures have abated since a high in 2006, 
average inflation remains well over ten percent.  The local 
government-controlled Syrian press also continues to 
regularly report on the crisis associated with increasing 
prices. 
 
GAUGING INFLATION 
----------------- 
¶2. (SBU) Prices of goods in Syria's consumer market, imported 
and locally produced, began to increase in late 2005.  In 
calendar year 2006, independent Syrian economists estimated 
that the inflation rate was well over ten percent, and closer 
to 20 percent when adding in the spike in real estate prices 
(reftel).  In order to better gauge this inflationary trend, 
Post developed its own price survey tool which uses 
approximately 100 consumer items divided into nine 
categories.  The categories are food, goods and services, 
utilities, housing, health care, travel and transportation, 
clothing, recreation, and education and communication.  In 
the period between June 2006 and June 2007, Post collected 
prices on a quarterly basis from five neighborhoods 
representing different Syrian income groups.  This was a 
first modest attempt to gauge inflation in Syria and Post 
will continue to refine its price survey tool moving forward. 
 
PRICE SURVEY REVEALS CONTINUED INFLATION 
---------------------------------------- 
¶3. (SBU) Post's recent price survey revealed that Syria 
continues to suffer from inflation, with the average 
inflation rate between June 2006 and June 2007 at 5.18 
percent.  This result is slightly lower than an IMF report 
that states average inflation in Syria during the first 
quarter of 2007 was eight percent.  Post's survey probably 
reflects an artificially low inflation rate because it does 
not include black market prices and the SARG's subsidy system 
often masks inflation.  Local Syrian economists assert that 
while inflationary pressures have abated since a high in 
2006, average inflation remains well over ten percent and 
that the cumulative effect of inflation over the past two 
years is decreasing the purchasing power of average Syrians. 
The price survey revealed that the prices of necessary goods 
and services, including food items, have disproportionally 
increased, while some luxury goods, including automobiles, 
decreased. 
 
SUBSIDIES MASK INFLATION 
------------------------ 
¶4. (SBU)  The SARG's subsidy system masks inflation in Syria. 
 The SARG subsidizes many basic utilities and commodities, 
including heating oil, electricity, butane (cooking) gas, 
gasoline, water, wheat, sugar, rice, cotton, sugar beets and 
flour.  Subsidies affect everyday life, as diesel and 
gasoline cost a fraction of international prices, irrigation 
water is paid for by the SARG, and electricity is 
artificially cheap.  Despite the severe drought this spring, 
the price of bread -) arguably the most important food item 
for Syrians -- has not changed for the past decade.  This may 
soon be changing, however, as SARG officials have recently 
made public statements that the government is developing a 
plan to gradually reduce the subsidy system. 
SHARP INCREASE IN REAL ESTATE PRICES 
------------------------------------ 
¶5. (SBU)  Real estate prices increased by four-fold over the 
past three years.  The influx of relatively wealthy Iraqi 
refugees, population growth in Syria, the growing demands of 
the nascent Syrian financial sector, and interest from Gulf 
investors contributed to an increase in rental and housing 
prices.  The large-scale housing and tourism projects with 
Gulf investment also led to a sharp increase in the price of 
land.  In addition, the increase in the international prices 
of some building materials (steel and aluminum), and the 
shortage of some locally produced construction materials 
(cement) also drove up costs. 
 
PRICES OF FOOD ON THE RISE 
-------------------------- 
¶6. (SBU) Syria experienced a drought this spring that led to 
an increase in the price of staples and grains ) 
traditionally stable commodities in Syria.  In addition, 
prices of lamb, beef, dairy products and eggs increased due 
to the increase in international feed prices.  Prices of 
chicken decreased dramatically between June 2006 and June 
2007 because the threat of Avian Influenza had abated and 
poultry producers were back in production.  Prices of fruits 
and vegetables rose over the same period because of an 
increase in domestic demand, legal exports, and smuggling 
operations. 
 
PRICES OF IMPORTS INCREASED 
--------------------------- 
¶7. (SBU)  Prices of goods imported from Europe, such as 
powdered and infant milk and butter ghee, increased due to 
the high value of the Euro coupled with parallel increase in 
international prices (Note:  Europe is Syria's main trading 
partner with a trade balance of USD 762 million in 2006.  End 
Note.)  Furniture prices also noticeably increased because 
the SARG imposed strict measures on the import of wood. 
While prices of some household goods have increased, due to 
the increase in the international prices of plastics, prices 
of some household electrical appliances have decreased 
slightly due to fierce competition in the local market and 
the exemption from customs duties on imports of these goods 
from Arab countries. 
 
FIERCE COMPETITION REDUCES CAR PRICES 
------------------------------------- 
¶8. (SBU)  The SARG's liberalization of the import 
restrictions on automobiles, lowering of import duties, and 
increasing access to credit from the nascent private banking 
sector has encouraged many Syrians to purchase vehicles for 
the first time.  These changes have also led to strong 
competition between car agents and a noticeable decrease in 
automobile prices.  Public transportation and taxi fares are 
set by the SARG and have remained the same over the course of 
the year due to the subsidized prices of gasoline and diesel. 
 
 
COMMODITY PRICE INCREASES OVERFLOW TO SERVICE SECTOR 
--------------------------------------------- ------- 
¶9. (SBU)  Members of the service sector, including doctors, 
medical laboratories, barbers, and taxi drivers have 
increased their charges and/or tips in response to increases 
in the price of commodities. 
 
¶10. (SBU) Comment: Estimating inflation in Syria is difficult 
because of a lack of credible statistics, as well as a 
rampant black market and government subsidies on many 
commodities.  In general, however, while inflationary 
pressures may have abated since 2006, the average Syrian's 
expendable income is being hit hard by price increases that 
are not uniform but fall disproportionally in necessary goods 
and services.  If the SARG does move forward with its 
announced plan to reduce subsidies -- although this remains 
open for debate due to the regime's preoccupation with 
regional political tensions -- inflation will likely 
skyrocket.  Even if the SARG finds the resources to delay the 
avoidable reduction in the current subsidy level, local 
Syrian economists have commented to us that recent statements 
by SARG officials on potential changes to the subsidies 
system have already encouraged some price increases. 
CORBIN