Koba Gvenetadze: “We are not alone in terms of inflation running high, this is a global challenge.”

Verdict: FactCheck concludes that Koba Gvenetadze’s statement is TRUE.

Resume:

The inflation rate is measured by the consumer price index which in reflects price change on goods and services purchased by an average consumer in a country. Inflation comparison between the different countries is possible in sense that inflation is a price change of a basket for an average consumer, although the comparison can only be tentative and the inflation rates of different countries would be different in terms of sensitivity vis-à-vis higher prices on certain commodities. For instance, for a country like Georgia where consumers spend more on food as compared to richer countries, an initial rise of prices on foodstuffs was more difficult, although for Europe and USA the price surge on fuels turned out to be more problematic.

Inflation is also a critical problem for Georgia, although the situation is indeed very hard across the world as well. According to current data, annual inflation in the EU is 10.9% which is a historic high since 1997 when the European Statistical Office (Eurostat) started to compile relevant statistics. In the United States, inflation is at 8.2% which is the highest figure in the last 40 years. The picture is similarly gruesome when it comes to many other countries. Of 47 European countries, Georgia is ranked 26th in terms of the inflation rate and is ranked 65th of 177 countries across the world.

Analysis

The President of the National Bank of Georgia, speaking about high inflation rate, stated: “We are not alone in terms of inflation running high - this is a global challenge.”

The current high inflation rate poses a critical problem for the population. From January to September 2020, the aggregated inflation; that is, the price growth figure was 27.3%. Higher inflation continues to persist and it has been over one year with uninterrupted double-digit inflation. From January to September 2022, annual inflation reached 9.1% whilst September’s inflation rate is 11.5% higher as compared to September 2021. It has been more than a decade when the inflation rate has been this high in Georgia. Certainly, this reality puts the Georgian population into an extremely difficult situation.

There are countless factors causing inflation and the issue is often the subject of fierce political debates. Generally, moderate inflation is considered to be an acceptable event in the economy as something that accompanies economic growth. The National Bank of Georgia’s target inflation figure is 3%. However, it is a problem when inflation exceeds the target figure and it is by the factor of three or four in our case. We can say with a high degree of confidence that current inflation both in Georgia and globally is largely caused by the post-pandemic situation together with different effects from Russia’s invasion of Ukraine. Restrictions introduced amid the pandemic as well as post-pandemic economic revival accompanied by the growth of the money supply in the world economy to stimulate it led to a disruption of normal processes in the economy such as the demand-supply chain.

In order to measure inflation, the National Statistics Office of Georgia annually monitors the prices of 350 most frequently consumed goods. These 350 goods are divided into 12 groups such as food and non-alcoholic beverages, transport, healthcare, etc. In different countries, the basket of an average consumer consists of different types or quantities/amounts of goods and services. For instance, food and non-alcoholic beverages, which accounts for 33.09% of the total basket, occupies the largest share in total inflation in Georgia. This is followed by transport with 11.8% and healthcare in the third position with 9.5%. Therefore, the total weight of these three groups in Georgia’s inflation is 55%. Naturally, different countries have different goods and services in their respective consumer baskets and their weights also vary. For instance, in relatively higher-income countries, some basic goods such as foodstuffs have a lighter weight. In more developed countries, however, such as the USA, Canada and richer EU member states, expenses related to accommodation (for instance, rent) fuel and transportation have higher shares.

Given the aforementioned circumstances, inflation comparison is possible in the sense that inflation is the price change of a basket for an average consumer, although the comparison can only be tentative and the inflation rates of different countries would be different in terms of sensitivity vis-à-vis higher prices on certain commodities. For instance, the global price hike on foodstuffs was especially painful for Georgia as the UN Food and Agricultural Organization (FAO) reported that food prices jumped 28% in 2021 reaching a ten-year high. For Europe and the US, the crisis in regard to the supply and higher prices on petroleum products and natural gas was particularly difficult.

According to current data, annual inflation in the EU is 10.9% which is a historic high since 1997 when the European Statistical Office (Eurostat) started to compile relevant statistics. In the United States, inflation is at 8.2% which is the highest figure in the last 40 years. The picture is similarly gruesome when it comes to many other countries. Of 47 European countries, Georgia is ranked 26th in terms of the inflation rate and is ranked 65th of 177 countries across the world.