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Journal number 2 ∘ Tamta Todadze
Pricing policy in Georgia



The main issue of the article is the impact of the recent inflation rate and price dynamics at the subsistence level in Georgia. It clarifies how the situation changed by the COVID-19 pandemic and the processes that developed as a result, how it affects the living standards of each citizen, employment and income. The paper comprehensively analyzes the main causes of inflation for Georgia as an import-dependent country, supply-side delays and sharply increased price dynamics in the international commodity market. Based on results received in the scope of research there are given conclusions and recommendations.

     The COVID-19 pandemic has become the biggest challenge  of the 21st century not only for the healthcare system but also for the economies of each country and the world in general. Challenges in different sectors of the economy are also compounded by the significant increase in consumer price inflation globally, which has the greatest impact on the living standards of each citizen.

     Over the past several millennia unprecedented global inflationary pressures have been recorded in the world, which is having a very severe impact on the economies of developing countries in particular. It should be mmentioned that Georgia is an import-dependent country, both for food raw materials and fuel, respectively, the main drivers of inflation, disruption of supply chains and sharply increased prices in the international commodity market, which have a major impact on local consumer prices. It should also be noted that the process of economic recovery has begun, which, through strong fiscal stimulus, credit assets and accumulated excess savings, is putting upward pressure on prices, which greatly complicates the economic picture in the country.

       In April 2022, compared to the previous month, the inflation rate in Georgia was 1.8%, and the annual inflation rate, much higher than the target of 3%, was 12.8%. As for core inflation, this figure was 5.0% in April 2022 compared to the same period last year, while the annual core inflation rate was set at 5.7%.

      Compared to the same period last year, prices increased significantly in the subgroups of food and non-alcoholic beverages (21.3%) and transport (22.4%), which are essential products / services for every citizen and are directly reflected in their standard of living. It is also noteworthy that in the consumer basket of Georgia, the weight of food and non-alcoholic beverages occupies the largest place and is equal to 33.09%, of which 30.23% comes from food. In the food and non-alcoholic beverages group, we see a 21.3% increase in prices compared to the same month last year, which was reflected in 6.77% points of annual inflation. Prices are significantly higher for each product in this group.

      Alongside the alarming numbers of inflation, the picture is very grim for the subsistence level. According to the data published by the National Statistics Office, in April, the subsistence level for men of working age was 241.0 GEL, which is 2.8 GEL more than the previous month, and the average subsistence level was 213.5 GEL, which is 2.5 GEL more than the previous month. It should also be noted that according to 2020 data, the share of the population below the absolute poverty line is 21.3%, and if we take into account the high level of inflation after 2020, unfortunately, the probability of an increase in the percentage is very high.

      What about the average nominal salary of hired employees, it increased by 11.3% and amounted to 1463.8 GEL, which is 149.1 GEL more than the previous year, and as for the employment rate, in the IV quarter of 2021, the unemployment rate in Georgia decreased by 1.4 percentage points compared to the same period last year and amounted to 19.0%. However, it is also necessary to take into account that these salaries are calculated by means of arithmetic mean, which does not mean that one employee receives 1463.8 GEL per month, moreover, the current socio-economic environment, based on in-depth observations, allows us to assume that for most employees, monthly the nominal wage reaches a much lower mark. At the same time, it is necessary to take into account the purchasing power of money, without which taking into account the increase in pay is absurd, nor does it allow us to say whether the pay for employees has really increased or not. For this it is necessary to take into account two specific indicators, namely:

  • How has the employee's nominal income changed?
  • How has the level of consumer prices (inflation) changed in the country?

It should be noted that this figure also includes income tax, except for which the average monthly nominal salary is equal to 1171 GEL.

      Everyone agrees that the main drivers of inflation are supply disruptions and sharply increased prices in the commodity market, which have a major impact on local consumer prices. At the same time, there is a growing fiscal stimulus in the process of economic recovery through the channel of credit assets and accumulated excess savings, which is an additional contributing factor to price growth.

     It is well known that since 2009, the National Bank of Georgia has been conducting monetary policy in the mode of inflation targeting. This means that it determines the target, annual rate of inflation. As it is known for 2019-2022, the inflation target was set at 3%. It should also be noted that monetary policy transmission mechanisms do not work in all countries, therefore the inflation targeting regime is not used everywhere. Moreover, for developing countries, it is the cause of challenges such as fiscal deficit, fiscal dominance, high dollarization, and most importantly, high inflation, with corresponding high fluctuations that take a very long time to balance. According to the latest data for April 2022, the annual inflation rate was set at 12.8%. According to an economics expert, Vladimer Papava, all this indicates that the targeting regime in Georgia is not working, that the central bank has no mechanism to regulate inflation due to rising costs, which is the source of additional economic problems. The President of the National Bank of Georgia has a completely different position, arguing that the general rise in prices is caused by the global economic crisis and has nothing to do with the effectiveness of monetary policy within the country. The fact is that the general increase in prices in Georgia began in the summer of 2019 and according to today's data has almost exceeded the target four times, which for me personally, as a researcher, further supports the opinion of Mr. Vladimer Papava.

      Consequently, several causes of inflation can be distinguished. First, it is the ineffective monetary policy in the country, more specifically the existence of a targeting regime, which further aggravates the economic situation in the country. On the other hand, supply disruptions and sharply increased prices in the international commodity market, which have the greatest impact on the growth of local consumer prices. The high level of public expectations of inflation, the Ukraine war has raised long-term inflation expectations. For the global economy, Russia and Ukraine are important suppliers of raw materials such as energy, metals, and agricultural products. The war has called into question the supply of these resources and accelerated their price development.

       The problem is complex, no one disputes the fact that the main goal of the state should be to pursue an economic, fiscal and monetary policy that ensures a stable rate of inflation. Against the background of the alarming figures presented above, it is necessary to work in several areas, including: strengthening the mechanisms of the basic system, promoting the development of the real sector of the country's economy (industry, agriculture, etc.), lowering inflation expectations, reducing budget deficits, long-term monetary policy and more.

Keywords: Price policy in Georgia, inflation, price dynamics, standard of living, fiscal policy, monetary policy.


JEL Codes: E30, E31, E64