The FINANCIAL — The Khachapuri Index, which measures the rate of inflation in Georgia is 6% up compared to the same period last year, according to the International School of Economics at Tbilisi State University (ISET).
Khachapuri, the traditional Georgian pastry product, has become a measure of inflation by ISET. The Georgian prototype of the world famous Big Mac Index measures the price change of six products included in preparation of Imereti Khachapuri. Products such as flour, cheese, milk, butter, eggs and yeast. It also includes energy costs – gas and electricity.
The Big Mac index is published by The Economist as an informal way of measuring the purchasing power parity between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries. The financial indicator is based on fast-food items.
“The Khachapuri Index is a simple way of explaining inflation. The Khachapuri Index is only in Georgia and consequently we would not be able to use it as a comparison with other countries,” declared Lasha Labadze, research associate at ISET, in charge of the Khachapuri project.
The observation of prices is for three different territories in Tbilisi: the Navtlughi market, Akhmetreli station territory and Vagzali territory.
“In each market, once a month, we ask five random sellers the prices of each of the six ingredients and based on these figures we create the index,” said Labadze.
“An interesting fact was that the Khachapuri Index is somehow quite close to the inflation rate, there is a big correlation between the officially announced Consumer Price Index and Khachapuri Index. The CPI is published at the end of the month while with the Khachapuri Index we can provide a tendency of price increase at the beginning of each month. We forecasted a price increase in September compared to August, and later the CPI showed this. In October we predicted growth in price and so did CPI. In November we forecast the price tendency to remain the same,” Labadze added.
ISET plans to expand Khachapuri Index calculations to the cities of Batumi and Kutaisi, by observing the same products. After which ISET will find out which city is more expensive to live in – Tbilisi, Batumi or Kutaisi.
The traditional methodology for tracking inflation is to construct a so-called consumer basket, consisting of goods consumed on a regular basis, and monitor its price over time.
The inflation rate consisted of 2% in October 2010, compared to the previous month’s rate in Georgia. The best measure for inflation is the Consumer Price Index – CPI, the price change for a market basket of goods and services from a defined period to the next.
To obtain prices of a representative group of goods and services, the National Statistics Office of Georgia surveys 7,000 households on their spending habits throughout Georgia in 8 major cities: Tbilisi, Gori, Batumi, Telavi, Akhaltsikhe, Poti and Marneuli.
They use the results of the survey to construct a market basket of 266 types of goods and services purchased by the typical urban family of four.
“There are 266 products considered in computation of CPI, each with their weight. The list of products includes food, education, automobile, shoes and even memory cards. The weight is evaluated according to the frequency of individuals using these products. According to the weights the consumer basket is then calculated. Once every three years the coefficients are renewed and the weights are assigned to the change of consumer choice,” Labadze declared.
In evaluating the market basket there are several procedures: for those goods and services that will be in demand from the population during the period, corresponding expenditures will be included in the market basket, and on the contrary – if demand for a good or service decreases, the product will be excluded from the market basket.
Each month a representative of the National Statistics Office visits stores in 8 major cities of Georgia and records prices of goods and services in the market basket.
In some specific stores the registrars compare the current prices of the products to the previous month’s prices and after that evaluate the average price of the product. The current price is divided into a corresponding period price – the previous month’s price and index is evaluated, this is the index of growth.
Each price in the consumer price index is given a weight equal to the fraction of the typical family’s budget spent on those goods and services purchased by the typical family.
The National Statistics Office calculates four types of inflation: monthly inflation – current month to previous month, month to the December of the previous year, month to the same month of the previous year, and average period to average period.
“The National Statistics Office is in the process of redesigning the basket to more realistically reflect Georgian consumption. The consuming habits change frequently, so things you consumed in the 1990s you know you will not consume in 2010. Sometimes consumption changes very quickly, other times the consumption basket has to be adjusted over time. However the problem is that if you adjust it too often you cannot compare a basket from 2009 to 2010. For that reason baskets that are used for CPI calculation are not changed very frequently,” said Eric Livny, Executive Director at the International School of Economics at Tbilisi State University (ISET).
“However, Georgia is now making changes in the basket. For a degree of comparability they will collect two baskets, they will collect prices for the new basket and at the same time for the old basket. The reason for this is to make a precise comparison, because if you have both a new and old basket you could compare the old basket to the previous year and also start gathering the new basket,” Livny added.
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