The average cost of cooking one standard Imeretian Khachapuri in May 2015 stood at 2.88 GEL, which is 2.7% lower month-on-month (i.e. compared to April 2015). The Khachapuri Index is actually up by 1% year-on-year (compared to May 2014), suggesting a slight uptick in annual inflation, at least as far khachapuri ingredients are concerned.

If we look at a more comprehensive basket of goods and services, such as used for the official Consumer Price Index (CPI), prices are up in both monthly and annual terms, by 0.6 and 3.5%, respectively.

What is driving the observed price increases?

Interestingly enough, annual Khachapuri inflation is driven by price increases for almost all ingredients, except Imeretian cheese. This is hardly incidental because Imeretian cheese a key khachapuri ingredient is produced domestically. Moreover, its production does not require any imported inputs. All other khachapuri ingredients eggs, flour, milk, butter, and yeast are either imported or require an imported production input, such as chicken feed.

The reason imported items go up in price is directly linked to the more than 30% devaluation of the Lari against the US dollar. As we show in the chart, price increases are particularly strong for internationally traded commodities, such as wheat, that are priced in USD and the demand for which is rather inelastic.