Jul 4, 2019

June inflation at 4.3% and is likely to pick up unless the GEL strengthens

Quick Update

  • The annual inflation stood at 4.3% in June 2019, 0.4 PP lower compared to the 4.7% in the previous month. The seasonally adjusted annualized inflation stood at negative 1.5%, mostly to be explained by lower prices on food and non-alcoholic beverages, particularly on fruits and vegetables subgroup.
  • Over the same period, estimated core inflation* came in at 3.6%, somewhat higher compared to the previous month.
  • In terms of products, higher prices on food and non-alcoholic beverages (+6.5% YoY), alcoholic beverages and tobacco (+20.1% YoY), and transport (+3.2% YoY) contributed most to the annual inflation. At the same time, prices went down on clothing and footwear (-6.9% YoY). A more moderate price decrease was observed in communication (-2.6% YoY).
  • Although the latest print of inflation was lower than expected, cost-push inflation pressures are likely building up amidst the undervalued currency (see note on CA balance and exchange rate). We expect higher core inflation in the coming months. While the more volatile components of the headline inflation, like prices on food and transportation are hard to predict, our headline inflation projection in the baseline scenario stands at around 5% for the end of 2019. At the same time, if the effective exchange rate of GEL remains at current levels for a prolonged period of time, there is a risk of inflation exceeding our baseline scenario by a significant margin (see more in upcoming monthly report).
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