Economist Ramaz Gerliani says inflation in Georgia is mainly driven by excessive growth in the money supply and the National Bank’s monetary policy, rather than by retailers or supermarket chains. Speaking on the TV-program “Analitics,” he commented on the parliamentary commission’s report on FMCG pricing, which found that retail sector profit margins were generally in line with international standards and that so-called “excessive margins” were not observed.
“First of all, it should be emphasized that we cannot avoid the conclusion of this commission. Initially, the rhetoric was directed elsewhere, but in the final report we see that the issue is less related to companies. It does not completely rule it out, but practically the conclusion is that price increases were not caused by this sector. Every economist already knew that inflation should not be searched for in a microsector. Inflation is a broad process, and focusing only on a single product or group of goods is not the right approach. The root cause of inflation, which is basic economics, is the imbalance between money supply and goods and services.
In Georgia, the money supply did not grow proportionally with economic growth. If we look from 2014-2016 until today, the money supply has increased fivefold, while the real economy has not even doubled. Nominally, yes, the economy looks larger, but this is artificial growth. If we calculate it in 2019 prices, the economy is actually GEL 72 billion rather than GEL 113 billion. Part of the excessive money supply was absorbed by economic growth, while the rest directly pushed prices higher,” Gerliani said.
The economist explained that inflation has been particularly visible in food products and basic consumer goods because demand for these items is relatively inelastic. According to him, consumers cannot significantly reduce spending on essentials such as bread, sugar, or transportation even when prices rise, making it easier for businesses to pass increased costs onto consumers.
Gerliani also criticized the National Bank’s decision to raise the refinancing rate to 8.25%, arguing that while higher interest rates may work as a short-term tool, in the long run they can fuel inflation by increasing borrowing costs for businesses and households.
“The National Bank was also wrong when it previously raised the refinancing rate to 11%. This is only a short-term instrument and its effectiveness has limits. If there is no systematic control over the money supply, monetary policy itself can become inflationary. Today, the refinancing rate has increased and borrowing costs will rise for a large share of businesses and citizens. More expensive money ultimately translates into higher prices for goods and services,” Gerliani stated.
