Rate of Inflation to Increase up to 6% in 3 Years – How is CPI computed in Georgia?

The FINANCIAL — According to National Bank of Georgia the targeted inflation for 2010-2012 is 6%.

The inflation rate in Georgia increased steadily reaching a rate of 11.0 in 2007, after which in the year 2008 the inflation rate fell and was 5.5. In 2009 the inflation rate decreased again and was 3.0.

“The inflation indicator in the range of 5-6% is not disastrous, and in some cases it is quite needed.

Deflation is significantly heavier, when the prices do not increase. 3-4-5% inflation is not a threat for the economy. We need to consider two sides, one is the consumer and the other – the manufacturer.

If we consider the manufacturer’s point of view depletion processes are quite difficult for management bringing damage, and it is quite difficult to make adjustments in profit investments,” says Zaza Chelidze, Chief Executive Director at National Statistics Office of 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.

“The purpose of a market basket is usually used for evaluating inflation and change in prices, rather than to evaluate poverty,” says says Nodar Khaduri, professor of Tbilisi State University.  

To obtain prices of a representative group of goods and services, the Statistics Department 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.

In evaluating the market basket there are several procedures: those goods and services that will be in demand from the population in the period, corresponding expenditures will be included in the market basket and on the contrary.

If demand for the goods or service decreases, the product will be excluded from the market basket.

Each month a representative of the Statistics Department 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.

“After that the index is brought into accordance with the weights and then we get an integrated average indicator of 266 products.

We calculate 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,” says Chelidze.

From the 10-20th of the month the data on consumer spending habits is collected, from the 20-30th the collected data is analyzed, and on the 5th of each month the results are published by the National Statistics Office of Georgia. 

The inflation rate according to the results of January 2010 in:

Azerbaijan – 5-7%
Turkey – 8%
Armenia – 7 %