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4.2​ Inflation 4.2.1​ CPI dynamics
Inflation in Georgia steady at 6.4% in February
Georgia’s annual inflation rate stood at 6.4% y/y in February, unchanged from January, while on a monthly basis prices moved up by 0.3%, statistics office Geostat reported on March 2.
The country’s inflation level peaked at 7% y/y in December. It is expected to drop to 3% by the end of the year as one-off effects seen last year, largely from tobacco excise duty, phase out.
More telling price stabilisation will be needed, however, to prompt the central bank to cut its refinancing rate from the current 9%.
It is expected that disinflation will be helped in coming months by an exchange rate no longer pulled by a depreciation trend seen in the second part of last year. The Georgian lari has strengthened during the first two months of 2020.
The currency strengthening partly stems from the rhetoric of the central bank. It has stressed that it will not moderate its hawkish policy (the refinancing rate was hiked to 9% last autumn) until “lending and growth rates no longer pose inflationary pressure.” On the other hand, fundamentals, particularly the narrowing of the foreign trade deficit, are favourable to exchange rate stabilisation.
The central bank at its January 29 board meeting maintained the refinancing rate at 9% and said that monetary policy would remain tight until medium-term inflation expectations declined to the 3% target.
In February, the annual inflation rate was driven by price changes in food and non-alcoholic beverages (up 12.7% y/y) and restaurants and hotels (up 8.7% y/y).
The monthly inflation rate was driven by price changes in the group of food and non-alcoholic beverages (up by 1.3% y/y); clothing and footwear (down by
15​ GEORGIA Country Report​ March 2020 ​​www.intellinews.com