The average cost of cooking one standard Imeretian Khachapuri in the last month of 2016 increased to 3.62 GEL, which is 4.6 % higher month-on-month (m/m, that is, compared to the previous month), and 4% lower year-on-year (y/y, that is, compared to the same month of last year).

The main contributors to y/y Khachapuri Index deflation were cheese (down 4.3%) and flour (down 9.2%). In previous publications, we talked about milk powder as a possible reason for the annual decline of cheese prices, which are trending below last year’s trend from July.

Another explanation might be related to fact that the Consumer Confidence Index has had a decreasing trend over the last couple of months. Particularly noticeable was the decrease of CCI in December 2016, compared to November 2016, from -11.5 to -26.5 (by 15 points). This is the most dramatic loss of the CCI ever observed since we started measuring consumer confidence in Georgia in 2012. One of the main reasons why people are more pessimistic is related to the Georgian lari’s (GEL) devaluation against the U.S. dollar (USD).

In December, the GEL/USD exchange rate stood at 2.65, representing a drop of 17 and 25 tetri, m/m, and y/y, respectively. Georgian consumers are concerned about current and expected inflation. As a result, it could be that they are willing to purchase and consume less Khachapuri and cheese.