On the back of a sharp y/y decline in the price of Imeretian cheese (down by about 10 and 18% in July and August 2016, respectively), the Khachapuri Index took a big hit in August 2016. Having reached the seasonal bottom in May, the Index increased in June due to regular seasonal factors (tourism-related increase in demand and a gradual slowdown in domestic milk production). Yet, its behavior in July and August represents a major departure from the multi-year pattern we have been observing since 2008.

In April, the average cost of cooking one standard Imeretian khachapuri fell to 2.96 GEL, which is 3.2% lower month-on-month (m/m, that is compared to March 2015), and 11.4% lower year-on-year (y/y, that is compared to April 2014). The main contributors to y/y Khachapuri Index deflation were cheese (down 22.3%) and eggs (2.5%). Not incidentally, both Imeretian cheese and eggs are produced in Georgia.

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 only one contributor to y/y deflation was the main component of the Khachapuri recipe - cheese (-13.8%) (see graph), while the prices of other components showed have increased: flour (+16.6%), milk (+5.4%), yeast (+7.6%), butter (+11.3%), and eggs (+1.3%).