Inflation

Annual Inflation Rate Reaches Two Year Record High at 6.6 % in May 2017

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Photo: ეროვნული ბანკი

Based on the latest report from GeoStat, in May 2017, the annual inflation rate in Georgia reached 6.6%, a record high in the past two years. The annual inflation rate was mainly influenced by price changes in transport, food, alcoholic beverages, and in the health sector.

Regarding transport, prices increased by 17% y/y, contributing 2.53 % to the annual inflation rate. The transport sector is divided into the subgroups operation of personal transport equipment (which accounts for 24% of the transport sector), purchase of vehicles (11.2 %), and transport service (6%).

Prices in food and non-alcoholic beverages have risen by 8.3% y/y, contributing 2.13% to annual inflation. Prices were recorded for the subgroups vegetables (30.3% of the food sector), sugar, jam, honey, chocolate, and confectionery (11.3%), milk, cheese, and eggs (10.1%), meat (8%), oils and fats (6%). Prices decreased for fruit and grapes (-4.7%)

In the alcoholic beverages and tobacco sector, prices went up by 15% y/y, contributing 0.97% to annual inflation. The increase for the tobacco subgroup equaled 31.7% and for alcoholic beverages to 1.4%.

In the health sector, prices increased by 6.7%, contributing 0.6% to annual inflation. Price increases were recorded for medical products, appliances, and equipment (16.8%) and outpatient medical services (5.3%).

Chart with inflation rates through years and months

The inflation rate over the past four months has exceeded the National Bank of Georgia’s target of 4%. High inflation rates were recorded in previous months of 2017, at 5.5% in February, 5.4% in March, and 6.1% in April.

On May 2nd, the National Bank increased the refinancing rate by 0.25%, bringing it from 6.75% to 7%, which would have a positive effect on reducing inflation rates. However, it will reduce joint demand, which will have a negative impact on Georgia’s economic growth.

The National Bank’s main monetary policy instrument is the refinancing rate – the interest rate that is applied to its refinancing loans for commercial banks. If projected inflation is above the target inflation rate, the NBG will then tighten the monetary policy by directly increasing the policy rate, in order to reduce a future surge in price levels.

 

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