Inflation Pressures Remained High

Inflationary pressures have remained high on the macro agenda as headline inflation jumped sharply in September to reach 6.4% YoY – a figure slightly above our expectations.

Higher inflation in September was broad based across a number of products, both imported and domestic, indicating that besides direct cost-push pressures stemming from the undervalued exchange rate, higher inflation expectations are also building up. Given the
current level of commodity prices and the GEL REER, we have revised our earlier projection of CPI inflation to around 8% for YE 2019 (the previous estimate was around 7%).

The GEL REER remains significantly undervalued and, unlike previous depreciation peaks, has remained so for a relatively prolonged time, having even stronger passthrough on prices.