The FINANCIAL — During the last 20 months, year-on-year inflation in Georgia (measured as a change in CPI in a given month relative to the same month of the previous year) is steadily increasing: from -3.1% in August 2009 to 14.3% in May 2011.
During the same period, year-on-year inflation in food prices, as approximated by the Kh-Index, has been increasing as well. Moreover, it has been increasing significantly faster than CPI, as reflected in the steeper slope of the Kh-Index curve on the chart. One can say that food prices, which are a large component in the general consumer basket, are one of the main drivers of inflation in Georgia since September 2010. For instance, in Tbilisi, from May 2010 to May 2011, the Khachapuri Index increased by 19.7% (compared to 14.3% in CPI inflation during the same period).
Economics lesson of the week: Georgia is a tiny fraction of the global economy
Why during the last 9 months food prices in Georgia grew faster than average prices, as measured by the official CPI? One has to remember that Georgia is a small economy which has to import much of what it consumes, including agricultural goods. For instance, Georgia produces only 10% of its total wheat consumption, importing about 600-700 tons of flour and wheat every year. The global price of wheat increased by 43% (!) during the past 12 months. Hence the answer to the question above: Georgia has been hit by the global inflation in the price of wheat and other basic commodities. Unfortunately, this has been very bad news for Khachapuri (and any “puri” – i.e. bread) lovers.
It is worth noting in this context that the recent wave of political unrest in the Middle East and elsewhere in the developing world is strongly related to the situation in the global food markets. Poor households, which spend almost their entire income on food consumption, are the first to suffer when food prices go up. Developing countries, where poor households constitute a relatively large share in total population, are therefore particularly vulnerable – socially and politically – to fluctuations in the global food prices.
The ISET Khachapuri Index
The International School of Economics at Tbilisi State University (ISET , www.iset.ge) has designed a simple and robust way of tracking inflation and the differences in the cost of living across Georgia’s major cities. Unlike traditional “consumer baskets” used for monitoring price inflation, our "basket" includes only those ingredients that are needed to cook one Imeretian khachapuri (cheese, butter, flour, yeast, eggs, and milk) and energy inputs (gas and electricity). We conduct a monthly survey of the major markets in Tbilisi, Kutaisi, Batumi and Telavi to measure the differences in the cost of living across Georgia and to track the monthly fluctuations in the prices of all relevant ingredients.
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