Page 20 - Small Stans and Causcasus Outlook 2022

2.1.2 Inflation and monetary policy

Georgia is no exception - inflation surged in 2021 and the central bank
is taking steps to address this by employing hawkish monetary policy.

Georgia’s inflation rose to 13.9% y/y in December 2021 after it had
hovered between 12% y/y and 13% y/y since August. Core inflation,
however, eased to 5.9% y/y from 6.1% y/y in November.

The spike in the headline inflation reflects base effects caused by utility
subsidies extended by the government in December 2020, when the
price of the housing contracted by 22% m/m and the overall consumer
prices consequently dropped by 1% m/m. The subsidies were phased
out in March 2021, when the price of housing rose by 36% m/m. This
base effect is likely to maintain the headline inflation at an elevated
level by March 2022.

The monetary policy committee of the National Bank of Georgia (NBG)
on December 8 increased the refinancing rate by 0.5 pp to 10.5%, in
the fourth rate hike during 2021. Loose fiscal policy, imported inflation
and aggregate demand have all contributed to the persistent
double-digit inflation.

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