The average cost of cooking one standard Imeretian Khachapuri in May 2020 stood at 4.18 GEL; 6.8% lower month-on-month compared to April. However, the Khachapuri Index did increase by 24.9% year-on-year (compared to May 2019). At this time of the year, the monthly downward trend in the Index is typically driven by a seasonal decline in cheese prices (due to the increased supply of fresh milk and a resulting lower demand for imported milk powder).
However, while such seasonal factors explain the MoM decline in the Index, they do not account for its YoY increase. Taking a more detailed look at prices, all ingredients contributed to the YoY inflation in May: cheese (+41.9%), butter (+15.5%), flour (+14.1%), eggs (+12.4%), yeast (+10.4%), and milk (+4.8%). As the chart reveals, the price increases are particularly high for internationally traded commodities (butter) and those that use imported intermediate inputs in production (flour and milk).
Imported items rose in price due to depreciation of the lari against the US dollar, in excess of 16% in May 2020 compared to May 2019. The GEL continued to depreciate relative to the USD: with the average GEL/USD exchange rate in May 2020 being 3.20 (2.75 in May 2019). A further reason for upsurges in price relates to potential logistical problems. During the pandemic, due to safety procedures, the transportation of food products was hindered, leading to shortages in supply and therefore higher prices.
According to the official Consumer Price Index (CPI), which relies on a more comprehensive basket of goods and services, compared to April 2020, food prices did not change in May. However, in yearly terms, there was inflation of 14.7% on food prices. A closer look at the category of milk, cheese, and eggs shows that prices increased by 24.6%, which is remarkably close to our estimate.