Deflation: Will this Trend Continue?

Deflation: Will this Trend Continue?

Deflation: Will this Trend Continue?

The average cost of cooking one standard Imeretian khachapuri in April 2018 across Georgian cities varied, from 2.90 GEL (the lowest price, observed in Kutaisi), to 3.60 GEL (the highest price, observed in Tbilisi). The price difference between Kutaisi and Tbilisi amounted 0.70 GEL, which is one of the highest differentials we have ever observed between these cities. The overall average price was 3.29 GEL, which is 7.4% lower compared to the previous month (March 2018), and 1.0% lower compared to same month last year (April 2017). 

As shown on the graph, year-on-year prices were consistently higher in 2017-2018, compared to 2016-2017 prices, until April, 2018. April is the first month in above-mentioned time period when we observe deflation compared to last year. The main contributors to y/y Khachapuri Index deflation were cheese (down 0.9%) and flour (down 4.2%). The price of cheese dropped dramatically (down by 32.9% m/m) in Kutaisi, compared to other cities. 

According to Georgian Dairy, in April 2018, the year-on-year milk price went down by 7%. This decrease in milk and cheese prices might be related to a higher milk supply this year, compared to the same period last year. Another factor that might be affecting dairy prices are good weather conditions and spring warmth, which arrived early this year. Another possible explanation might be upgrading in the dairy sector, which we discussed in previous publication. If this trend continues, we may expect cheaper cheese and khachapuri in the upcoming months as well, compared to last year.