Annual inflation stood at 7.2% in March. The reduction of inflation since last December was related to the subsidization of utility fees, which was of a temporary nature. The end of this subsidy in March 2021 was reflected in the upward shift of inflation. It is noteworthy that the subsidy will also have a base effect with a significant upward impact on the annual inflation rate in December 2021 and January-February 2022. Given the changed circumstances since the previous meeting, according to the updated forecast, other things being equal, inflation will average around 6.5% in 2021 and then gradually approach the target. The forecast for economic growth is about 4% in the baseline scenario.
According to Koba Gvenetadze, head of the National Bank of Georgia, the extraordinary situation created in Georgia and worldwide due to the coronavirus is the reason for upward inflation.
“Georgia is a country dependent on tourism and the coronavirus has affected this sector the most. A separate assessment was made by the International Monetary Fund for service-dependent countries, which noted that service-dependent countries find it more difficult to recover from this type of shock. Georgia lost up to $ 3 billion in foreign exchange earnings, which impaired the current account deficit and created a reassure on the exchange rate, which was reflected in prices. At the same time, the prices of consumer goods have risen significantly on the international market: wheat, sunflower, oil, sugar...
In addition, due to restrictions imposed to contain the pandemic, companies have increased operating costs, which has affected prices. The combination of these factors causes high inflation,” Koba Gvenatadze explained.
As for forecasts, the NBG president predicts that inflation will start reduction from 2022.
