JULY 2015: INFLATION ON THE RISE?

JULY 2015: INFLATION ON THE RISE?

The FINANCIAL -- In June of 2015, the average cost of cooking one standard Imeretian Khachapuri fell to 2.85GEL, which is 1% lower month-on-month (compared to May 2015), and 0.8% higher year-on-year (compared to June 2014).

The main contributors to y/y Khachapuri Index deflation were cheese (down by 7%) and flour (down by 1.6%). All other ingredients increase in price: eggs (21.6%), yeast (15.3%), milk (10.7%) and butter (7.3%).

At the same time, annual inflation, as measured by the official Consumer Price Index (CPI), clocked 4.5 % in June 2015 – the highest level since the start of GEL devaluation. Even more alarmingly, the prices of food, which accounts to around 40% of the official consumer basket, increased by 5.7 %. The biggest gains were in the fruit and grapes (35%), oil and fats (9.8%), coffee, tea and cocoa (7.9%) and vegetables (5.4%).

Georgia is importing more than half of its food consumption, and devaluation may have affected the prices of imported commodities. However, the 35% increase in fruit and grape prices – most of which are locally produced – is harder to explain.

The Khachapuri Index is highly correlated with the Food CPI (see chart), yet, being dominated by locally produced Imeretian cheese, it is not as sensitive to changes in the price of imported commodities.