Low Global Commodity Prices Help Keep Local Inflation At Bay

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The FINANCIAL — The average cost of cooking one standard portion of Imeretian Khachapuri stood at 3.61 GEL in January 2016. This is 4.3% lower m/m (compared to December 2015), and 6% higher y/y (compared to the same month of previous year, January 2015).Thus, annual inflation, as measured by ISET’s Khachapuri index, is roughly in line with the official estimate of 6%, based on GeoStat’s Consumer Price Index (CPI).

The prices of all khachapuri ingredients, except flour, are up in annual terms (see chart), that is compared to January 2015. Understandably, prices of milk, cheese and most other products are under pressure given the massive devaluation of the Georgian lari over the course of 2015 on the one hand, and the country’s reliance on imported food products and ingredients, such as milk powder, on the other.

Flour is an interesting exception. While milled locally, the bulk of flour available on the Georgian market is made from imported wheat. Yet, the price of flour did not increase in line with other food products (it actually declined by 0.1% (y/y)). The reason for the relative stability in the price of flour is the slump in the prices of wheat and many other globally traded commodities (such as oil). Thus, according to the Agriculture Market Information System (AMIS) report, the global price of wheat is currently 17% below its January 2015 level. This is excellent news for consumers in Georgia and other developing countries in which food accounts for a relatively large portion of average household expenditures. 


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