Home / Economy / Low Inflation – Myths And Reality

Low Inflation – Myths And Reality

The consumer basket that includes 295 goods and services has risen in price by 80%. The growth was higher or lower for different items. An over 5% growth was recorded for 148 items, while 14 items cheapened by less than 5%. Is the 5.4% rise in averaged price realistic?

In this situation we should pose a question: How does the reported inflation rate reflect the reality?

There are several factors that cast doubts on the adequacy of the inflation indicator:

1) A low ratio of food products in the consumer basket;

2) Exclusion of the bank loan factor from the inflation indicator after the GEL rate devaluation.

“The consumer basket is a basis for calculating the consumer prices index. It represents a list of the most consumed goods and services in the country and it reflects the structure of the averaged consumer in the country”, the website of GeoStat, the national statistics office of Georgia, reads.

The ratio of food products in the consumer basket makes up 30%. We can assess whether the people around us spend only 30% ratio of their expenditures on food products.

Print

According to the GeoStat, an averaged salary in Georgia makes up 773 GEL. According to the GeoStat structure of the consumer basket, an averaged Georgian spends the salary in the following portions:

 

-Food and nonalcoholic beverages – 238 GEL;

-Alcoholic Beverages and Tobacco – 40 GEL;

-Clothes and Shoes – 22 GEL;

-Home, water, electricity, gas and other heating means – 65 GEL;

-Furniture, household things and accessories, residential place repairs and arrangement – 50 GEL;

-Healthcare – 73 GEL;

-Transportation Costs – 91 GEL;

-Communication – 28 GEL;

-Recreation, Vacation and Culture – 55 GEL;

-Education – 39 GEL;

-Hotels, Cafes and Restaurants – 37 GEL;

-Other Goods and Services – 35 GEL;

 

The food product and healthcare expenses are higher in the averaged consumer’s        basket. Therefore, if the ratio were higher in the consumer basket, the inflation indicator would be over 5.4%.

At the same time, the common growth in prices does not reflect the increased value of USD dominated loans. As a result of the GEL devaluation, bank loans have risen in price by 35% and this surge brings the same effect as in case of bread, potato or any other products.

Thus, the government has reported lower inflation rate, while the reality suggests the higher indicator. As a result, the National Bank of Georgia (NBG) has not timely toughened the monetary policy to the required extent.

As a result, the inflation rate has surpassed the target indicator and the pressure on the already devaluated GEL has further increased.