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Cost of Living
Photo/Zura Balanchivadze

The Current Cost of Living Index is Deceptive

The cost of living index is one of the key parameters reflecting the social-economic development of a country. Research and analysis of the cost of living is relevant for both developing and developed economies.

According to Geostat, the national statistics service of Georgia, the cost of living for an able-bodied male is 175.30 GEL, while the monthly cost of living for an average family is 294 GEL. As costs are based on family size, the cost of living for one-member family is 155 GEL, for a two-member family it’s 248 GEL and for a three-member family the cost is 279 GEL. According to Geostat, the cost of living for a four-member family is 310 GEL, a five-member family needs 349 GEL to cover living costs and a six-member family needs 413 GEL. These amounts fail to withstand criticism, and the financial estimates cannot satisfy human needs and ensure decent living standards.

In Georgia, the cost of living index is based on the cost of food. According to Geostat’s calculation method, the food budget for an able-bodied male includes the food volume necessary for normal physiological needs and working capability, at a minimum volume of volume and calories. The minimum food basket for an able-bodied male consists of 40 food varieties and equals 2,300 kilo-calories. However, specialists advise that 2,500 kilo-calories are required for daily consumption, and food products should be more diversified.

Discussions are underway regarding the revision of the cost of living calculation. Everyone involved agrees that the current methodology is obsolete and harmful, however, resolution of this problem seems to be far off.

It is noteworthy that an unbiased examination of the minimum food basket and cost of living does not depend totally on the financial potential of a country. Determination of the real cost of living does not imply an urgent revision of social packages. The cost of living implies the benchmark which the government should follow for social policy implementation.

When discussing peculiarities of the cost of living index, it is important to not changes throughout time. The United National Movement declared social equality and the improvement of living conditions top priorities, however, it is not exaggerated to say that the accompanying social policy was a façade, and did not ensure any improvements in the social system. This is proven by analysis using the cost of living index calculation. From 1997 to 2003, the cost of living grew, and in 2003 it reached a maximum of 130.7 GEL. The next year the minimum declined by 1.6 times after the energy value of food products shrank and expensive products were replaced by cheaper products. The reduced value of the food basket lowered the cost of living for an able-bodied man. As for calories, it should be noted that before 2003 in Georgia, the daily norm of the food basket was 2,500 kilo calories, while after 2003 the norm declined to 2,300 kilo calories.

Naturally, an actually reduced cost of living would decrease the poverty level. However, the poverty level was reduced artificially, not because of improved living conditions.

According to the minimum food basket value, the ratio of food expenditures in the cost of living is represented by a 70/30 proportion. 70% of the cost of living goes to food necessities, and 30% covers other needs. These proportions are obsolete, and in many European countries this proportion frequently equals to 60/40 and 50/50.

Naturally, recalculation of the proportions are necessary to determine the real cost of decent life, not base physical existence.

Based on the reality of life in Georgia, it is necessary to replace the current methodology with modern calculation standards, because the real cost of living determination will change social policy. As a result the benchmark of pensions and minimum social allowances will be higher than today. It is difficult to name specific figures for how much the cost of living should be, but this technical issue requires the involvement of various parties.

We should stress that, based on the gaps in this methodology, the current cost of living index is deceptive. Consequently, we should closely analyze reality to determine the real amount necessary for decent life for our citizens.

Moreover, it is unacceptable to delay the correction of methodological errors. Only political will is required to resolve this problem. Clearly, the authorities are not interested in determining the real cost of living, because current social policy will be turned upside down. Before elections, almost every political party pledges that it will determine the cost of living through new style and methodology.

Andria Gvidiani

Association of Young Financiers and Businessmen