Khachapuri Index kept declining in March with the average cost of cooking one standard Imeretian Khachapuri reaching 3.15 GEL. This is 7% lower month-on-month (compared to February 2015), and 3.1% lower year-on-year (compared to March 2014). In general, the downward trend in Kh-Index at this time of the year is driven by the seasonal decline in cheese prices (due to increased supply of fresh milk and lower demand during the fasting period). However, while these seasonal factors explain the m/m change in the Index, they do not account for its y/y decline.

If we take a more detailed look at the prices of Kh-Index ingredients (see graph), the main contributors to y/y Khachapuri index deflation in March were cheese (-12%) and eggs (-1%). All other ingredients increased in price: flour (11%), yeast (21%), butter (6%), and milk (12%). As can be easily seen, prices fell y/y for locally-produced goods (eggs and cheese, made of fresh milk); prices went up y/y for goods that are imported (yeast and butter) or use imported intermediate inputs in their production (flour and milk).

The opposite movement of prices for domestically produced and imported goods can be related to the recent GEL depreciation and its impact on the consumers’ purchasing power. With GEL losing in value against USD, imported goods become more expensive when expressed in GEL. As a result, consumers have to spend a larger portion of their budget on (more expensive) imported goods, negatively affecting demand (and prices) for domestic goods such as cheese and eggs.