Editorial: Inflation in the Iraqi economy and how to reduce the repercussions (1-2)

D. Accustomed Naji al-Hamdani

Inflation in the economy occurs in the case of the continuous rise in the general level of prices of all commodity groups, and service. Either the rise in the prices of some goods and services not called inflation. And inflation complex phenomenon satisfactory and vehicle and staying in particular capitalist economy because of his ultra ongoing crises as an inevitable result of the structural nature-based struggle for exploitation and profit. And can be subject to inflation all developed and developing economies alike.

Inflation arises in most cases because of the imbalance and lack of balance between aggregate demand and aggregate supply in the national economy. When commodity supply deficit to meet the total demand of the consumers of goods and services prices rising commodity groups and causing inflation. The greater the gap widening between aggregate demand and aggregate supply accelerates the pace of the rise in inflation rates. According to a report of Economic Affairs of the United Nations, the inflation rate in Iraq until 2006 amounted to 64.8%. According to the report, Iraq is the country most of inflation among the 22 Arab countries. The record price index consumer grew by 33.6% and 33.9%, 36% and 64.8% for the years 2003, 2004, 2005 and 2006 respectively. Rising inflation index in March 2006 to 53% compared to 2005 put the Iraqi economy in inflationary trends experienced in the economic blockade. Inflation has risen to great ranges reaching monthly rate of increase in the index of consumer prices in July of 2006, nearly 70% compared with the same year, 2005, and continued to rise in the month of August 2006 until the rate of 76.6% compared to the same month of last year.

According to the report published by the Iraqi Ministry of Planning, the annual inflation index in Iraq has increased since April of 2011 until April of 2012 by 8.7%. The ministry justified the increase by rising food prices and non-alcoholic drinks by about 13% and housing prices rose 9.7% and vegetables at a rate of 13.3% and rents for residential buildings by 14%. The results of a selected sample prepared by the Central Bureau of Statistics on sales outlets in the provinces of Iraq, the index of consumer prices stood at 142.4% in the month of April 2012. Any rate rise from 1.1% to 8.7% compared with April last year, and the high prices of restaurants at a 6.9% rate. And education by 5.9% compared to April 2011.

The Iraqi economy because of its links to the multi-capitalist economy and absolute openness to foreign markets has been affected and will be greatly influenced by international foreign trade variables and what is happening in the capitalist countries of recession and inflation and the high cost of financial and monetary crises. And contribute in particular the policy of economic liberalization that Iraq seeks to apply to incapacitate the monetary authorities in control the prices of the national currency actress Iraqi dinar to strengthen its monetary value and competitiveness in the foreign exchange market.

The crisis experienced by the Iraqi economy is a complex crisis constitute a cause and a result of the crises of unemployment and services and in the failure of the productive sectors and skyrocketing prices. According to the Iraqi Ministry of Planning, the proportion of people living below the poverty line 23% and the number of poor people in Iraq exceeded 8 million, and the unemployment rate more than 20% until 2012. Iraq is ranked third in the world among the most corrupt countries and described as a failed state.

The most common inflation in developing economies such as Iraq is inflation due to demand that occurs due to the inability of the aggregate supply of goods and services to keep up with overall demand for consumer audience. Also occurs when growth exceeds the cash incomes increase in the prices of goods and services leading to fold purchasing power of money. Thus inflation becomes the cause of the deterioration of the value of the currency and that applies to the case of Iraq. The downturn in the general level of prices of goods and services leads to enhance the monetary value of the national currency is achieved by bridging the gap between demand and supply market. An increase of the supply of goods and services a manner that achieves balance and enough to cover the needs of the market on a permanent basis.

For the inflation multiple types as inflation by demand and inflation pressure costs and inflation creeping inflation hidden and hyperinflation that arises when high prices at rates very high in the short period of time, leading to the collapse of the monetary system and thus lose money and function as a store of value and as an intermediary for the exchange. There has been this kind of inflation in Iraq in the nineties, reaching 31000% inflation rate. In Germany after the First World War prices rose at a rate of 100,000,000,000, and also happened in Greece, thereby increasing prices more than 25,000 times between 1939 and 1948.

Despite the radical change in economic philosophy after the regime change in Iraq, the Iraqi economy did not achieve economic growth real only in the oil sector, a growth faltering due to lack of planning and economic mismanagement and this remained the Iraqi economy live in a tunnel economic crisis multifaceted one manifestations of inflation and economic stagnation goal of disable a lot of production capacities, worsening unemployment and stops productive activity in the real sectors which reflected negatively on the living standards of the community and increase the number of poor people and the widening gap between the incomes of the poor and the rich and the emergence of powerful financial centers for some influential people in the state.

The observer for the movement of the exchange rate of the Iraqi currency and rising prices infer some contradiction between economic logic and the movement of prices. It is supposed to result in improvement in the exchange rate of the Iraqi dinar against the U.S. dollar to lower commodity prices, but that happens, the improvement achieved in the value of the Iraqi dinar did not stop the march of prices upward. Inflation and thus leads to gorging on scarce access of low-income people and contributes to the expansion of poverty and its extension to other categories.

The price drop foreign currency exchange leads logically to the high value of the purchasing power of the Iraqi dinar and get more goods and services, especially that the bulk of the items in the Iraqi market are imported goods denominated in U.S. dollars. This explains the contradiction presence of high inflation rates and a struggling situation experienced by the Iraqi economy.

Inflation Lalani in the Iraqi economy can not be confined by one but multiple reasons and factors. Inflation arises due to increasing consumer commodity demand and the inability of the Iraqi market to meet this growing demand. The inflation also arises from the prohibitively high prices in countries which Iraq depends on merchandise securing its imports. In this case, described inflation in Iraq imported inflation. In other cases inflation arises from the instability of the monetary policy and deficit financing and resort to external borrowing to cover the deficit in the budget. Also arises from the excessive display of large amounts of money are not matched by only small amounts of goods and services, leading to higher prices and depreciation of the currency.

The economic and monetary policy of price liberalization, trade and investment and services is a policy incapable of addressing imbalances in the economic structure of Iraq and is able to rid Iraq of its economic crisis and political, service and security because they lack the development strategy and economic vision sets priorities in economic and financial reform.