25.Jan .2021 21:30

Fridge vs. Statistics: What Happens to Prices?

Fridge vs. Statistics: What Happens to Prices?
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Rising prices (inflation) is the third most important national-level issue facing individuals and families in Georgia after jobs and poverty – this is what the most recent NDI poll shows.
According to Investopedia, inflation is a quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time.
Please, remember this definition. We will need it later.
Now somebody might say – according to official figures, the inflation is declining, why do these people worry about prices so much?

Today's Editor's Note will try to answer this question.

First, let us explain the recent official figures.
If you look at the National Bank of Georgia (NBG) home page up in the left corner of the website, the Central Bank tells you that annual inflation is 2.4%, which means that the inflation rate in Georgia has actually dropped in December 2020 from 3.8% in the previous month.
Actually, it was the lowest inflation rate since February 2019.
If we look closer to the basket of selected goods and services, we will definitely notice a breeze of lockdown on prices. Namely: Cost dropped further mostly for transport (-2.3% vs -5.2%) and recreation & culture (-2.8% vs -4.2%), which is under the total lockdown. Those sectors that are under point restrictions - restaurants & hotels register less price increase (3.5% vs. 5.9%). Prices continued to further increase for those sectors that have been functioning freely for the whole period of the pandemic - food and non-alcoholic beverages (6.8% vs. 6%) and health (9.6% vs. 8.8%).
What really drove the inflation down, though, was a sharp decrease in prices of housing & utilities (-21.7% vs. 1.4% in November); lower prices of water supply and miscellaneous services relating to the dwelling (-36.5%) and electricity, gas, and other fuels (-30.1%).
The reason for that was state subsidies for low-energy consumers by the government for 4 months (from November to February), based on the government decree of 30 October 2020.
What Georgia's leading Investment Bank Galt and Taggart noted after the National Statistics Office of Georgia (Geostat) issued a statement explaining the reason for such a sharp drop in the rate of inflation was important: "The same subsidies have not been considered by Geostat in Spring and November 2020" - Galt and Taggart wrote in its report.

Geostat said it used the international standard for calculating the inflation approved by the International Monetary Fund (IMF). The official statement did not elaborate any further.

BM.GE asked the NBG Governor Koba Gvenetadze what he thought of such calculations of inflation and got the following answer: "This is the decision that Geostat took based on the international methodology. For us, this sharp drop in inflation is a single factor. We always emphasize that outlook for future inflation is more important for us while making monetary policy decisions rather than the current inflation".
So once more - what is the current inflation?
In its report, Geostat also mentions the annual core inflation (including tobacco and excluding subsidies), which translates into a 5.3% increase in prices. "The annual core inflation without tobacco amounted to 4.9%" - Geostat reported.
These figures are not on the left upper corner of the NBG webpage or in the final table of Geostat for inflation.
"Today, inflation is not 2.4% - the Financial Expert and Former Head of the Pension Agency Levan Surguladze told BM.GE - When the government subsidizes price, this does not mean that the price itself has declined. This means that somebody else paid for that service or product".
Now back to the definition of inflation that I asked you to keep in mind; a recent NDI poll, and our main question - how come that from day to day we have to pay more for the things we used to pay less, but the inflation rate still tells another story?
If you scroll up this Note and read the definition again, you will too notice that there are two components to inflation. "One is the price itself, and the other is the number of actually sold goods – Surguladze explained to BM.GE - A product or a service may become more expensive, but if nobody can buy it, then the price still stays high, but the inflation rate goes down".
This is what happens to most of us today – prices are high on the market, but it does not translate fully into the inflation rate since we either are not willing to buy products or services due to the uncertainty on the market, or we simply do not have means to do so.
At the end of the day, what really matters to most of us and those people in the poll - especially under the current point lockdowns - is what we can find in our fridge.