National Bank: inflation in Georgia has passed peak period

Inflation in Georgia stabilizes

According to the National Bank of Georgia, inflation in Georgia has passed its peak period, though it remains high — 11.5% per annum in September. The National Bank also announced that the monetary policy rate will remain at 11%. According to the National Bank, “inflationary pressures remain high in most countries of the world, to which the leading central banks are responding by tightening financial conditions.” According to the National Bank, this worsens expectations for global economic growth and creates the risk of stagflation.

“Recently, a positive trend has been observed in the international commodity markets – prices for products and the cost of international transportation are decreasing. Despite the still high level, the UN Food and Agriculture Organization (FAO) International Food Price Index has been declining for six months in a row. It is expected that against the backdrop of the strengthening of the exchange rate, these global trends will gradually be transmitted to the local market, which will reduce inflation. However, given the current geopolitical situation, uncertainty remains high. At the same time, a long-term deviation from the inflation target increases the risks of lower inflation,” the National Bank states.

According to experts from the National Bank, as a result of the Russian-Ukrainian war and related sanctions migration to Georgia has increased significantly, which stimulated demand. The average annual economic growth for the first eight months of this year was 10.3%:

“Accordingly, the forecast for economic growth in 2022 is raised to 10%, and the average annual level of economic activity is likely to exceed its potential level. As a result, demand-driven inflationary risks have increased, although this is partly offset by an appreciation of the lari exchange rate as a result of foreign capital inflows.

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“According to the forecast of the National Bank, inflation will remain high until the end of the year, although it will continue to gradually decline and approach the target level in the second half of 2023.

“Taking into account the existing inflationary risks, a tight monetary policy will be maintained and in the future its normalization will begin gradually and only after a clear downward trend in inflation appears. On the other hand, if inflationary expectations rise and/or additional demand-side pressure on prices, it may be necessary to tighten policy more or maintain it at current levels for a longer period of time. In order to avoid inflationary pressure arising from demand, the National Bank will use additional instruments as needed,” the National Bank said in a statement.