Posted: 4 years ago

GEL Depreciation Lowers Inflation Rate

According to Geostat, the national statistics service of Georgia, in June 2019, compared to May, inflation rate made up -1%, while annual inflation rate constituted 4.3%, down from 4.7% in May.

 Prices on food products and soft drinks have declined by 3.9%. Prices decreased in the following subgroups: vegetable and garden plants (-27.9%), fruits and grapes (-5.8%). At the same time, prices increased on sugar, marmalades and other sweets (+1.3%), milk, cheese and eggs (+0.7%).

 The transport group recorded 0.9% upturn with 0.1% effect on total inflation rate. The group recorded 1.1% upturn in purchase of transport and 1.0% growth in exploitation of personal transport. 

Healthcare group registered 0.8% upturn in prices. Namely, prices on medical products, equipment and devices rose by 1.9%.

As to annual inflation rate, 6.5% upturn was registered in the group of food products and soft drinks, 20.1% growth in the group on strong drinks and tobacco; 3.2% rise in the transport group, 5% upturn in the group of entertainment, holidaymaking and cultural events; 2.9% growth in health sector.

„A report for the month of June has been published. Surprisingly, prices have decreased compared to the previous month. Naturally, we should be glad, because prices have decreased, the central bank has go closer to the target indicator, solvency of our citizens has increased and there is not bad process.

But what happens in reality. The previous month recorded 4.7% inflation rate and this is an essential inclination form the target rate. Based on the June developments, essential devaluation of the exchange rate and historical rise in fuel prices, the inflation rate was to further incline from the target rate, even more so our consumer basket is mainly replenished by imported goods. However, Geostat reports that the inflation rate remains around 4.3%.

How is this possible? The point is that prices rose on eggs, sugar, milk, sweets, other essentials, transport and healthcare, but prices declined on vegetables and garden plants. This last component has lowered the common level of prices in the country, Paata Bairakhtari, vice president of Association of Young Financiers and Businessmen (AYFB) noted.

Otar Nadaraia, chief economist of TBC Bank, forecasts that the 2019 inflation will essentially incline from the target rate. GEL is expected to further fall to 3.00 point. The NBG forecast for the inflation inclination from the target rate has become useless. The rate will rise, but the figure will not become two-digit, the economist said.

6-7% inflation rate would be maintained amid 1 USD=2.82 GEL. He expects the 2019 inflation rate to hit 8-9% and the GEL exchange rate to fall to 3.00 point against USD. The 5% inflation rate would be maintain amid 1USD=2.70 GEL

The NBG vice president asserts that at this stage it is not necessary to revise the NBG policy, but if the inflation process deepens, then the central bank will take corresponding measures.

“The inflation rate report was published several days ago and the rate makes up 4.3%, including the effect from cigarette excise growth is 1.3% and this is the so-called exogenic factor, without which the inflation rate would be 3%. Our target indicator is oriented on long-term objectives. Therefore, we supervise the inflation rate tendencies in the future and consequently, we will take decisions based on these indicators.

On July 24 we will hold the policy committee meeting and based on the existing information if we detect price growth risks, naturally, we will tighten monetary policy. If we see that the declining demand may bring apposite outcomes, we will smooth the policy”, Archil Mestvirishvili said.