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