Inflation moderates in Iraq

By Greg Richards

The Central Bank of Iraq publishes an array of "key financial indicators" on its website. One of these is inflation, measured on a one-month, six-month and 12-month basis. Taking the 12-month - annual - inflation rate as the most intuitive, here are the figures for the last year:

IraqAnnual inflation rate
2006

Jan 22%

Feb 42%

Mar 53%

Apr 48%

May 53%

Jun 52%

Jul 70%

Aug 77%

Sep 52%

Oct 53%

Nov 52%

Dec 65%

2007

Jan 66%

Feb 37%

Clearly, these are high inflation numbers but note the dramatic reduction in annual inflation for February from January of this year. February's number - the inflation rate on an annual basis - is, at 37%, the lowest since January 2006, at 22% and well below January 2007's 66%. On a monthly basis, February actually represents a month of deflation from January 2007, meaning the Consumer Price Index in Iraq declined in February 2007 from January 2007.

I think financial indicators are useful tiles in the mosaic of Iraq. I do not have enough information to paint a complete picture of the economy or the strains in the economy based on them at this point, but moderating inflation, even if from a high level, is a sign of nonpanic, not a sign of panic.

When combined with the continued advance in the value of the Iraqi dinar and the ongoing rise in the Iraq Stock Exchange Index (up 12.8% year-to-date), we do not have a picture of despair in the economy.

Admiral Fallon has now arrived in-theater. The new team is now assembled. General Petraeus is getting results in Baghdad. There is no question as time passes that we have made huge mistakes in Iraq since 2003. But we have also been up against huge problems. The only really useful question is where we go from here. The data presented here suggests that economically things are moving forward in Iraq, even if far from our original goals. For instance, electric power generation is still at around 4,000 MW, or about the pre-war level.

Nevertheless, our predicament can be summarized by the question - do we want to fight the Islamic radicals there? Or here? While there is a chance that we can still press on toward our objectives, the sensible thing is to do so.