Iraq's CPI inflation sank to a three-year low of 1.3% y/y in March 2013 from 2.2% the month before due to shrinking food prices and a slower housing price growth, data from the Central Board of Statistics showed. Transport, entertainment and communications charges also remained in the red, helping cut CPI in March.

In monthly terms, CPI inflation rose 0.8% m/m, quickening from 0.1% in February, lifted mainly by a strong food price monthly increase. Core inflation, which excludes volatile fresh produce and utility charges, eased to 3.2% y/y in March from 3.4% the month before.

Food and beverage prices (38% of the basket) spiked by 3.0% m/m in March from 0.5% a month earlier due to seasonal factors which fuelled fresh produce prices. Fresh vegetables prices climbed 10.0% m/m and those of fruits rose 1.2%. But a high prior-year base deepened annual food price deflation to 3.4% y/y from 1.2% y/y in February.

Housing prices, which include rent, electricity and water, fell 0.5% in March trimming annual increase to 5.5% y/y from 5.9% a month earlier. Rent prices grew 8.6% y/y, the same as in February. Rent costs remain high due to surging domestic demand and an underperforming construction sector. But utility charges shrank 3.7% y/y during the month. Transport prices dropped 0.3% y/y whereas those of telecom fell 7.5% in March.

Iraq’s CPI inflation will remain subdued at 4%-5% in 2013 in case food and housing prices stabilise, according to government officials. CPI inflation will ease to 4.3% in 2013 from 6.1% the year before, according to the latest IMF forecast.