While gradually increasing since June, in line with its seasonal trend (driven by a gradual decline in the production of fresh milk), the Khachapuri Index remains almost 10% below its level exactly one year ago. Constructed as a weighted average of the prices of various khachapuri ingredients, the Index is particularly sensitive to changes in the price of Imeretian cheese, its most expensive ingredient. The recent spell of annual deflation in the Khachapuri Index is thus a reflection of a peculiar sagging in the price of cheese (see table).

According to Geostat’s rapid estimates, real GDP grew by 2.1% in July 2016, while the growth rate for Q2 stood at 2.3% year over year (YoY). The estimated second quarter growth was thus 1.6 percentage points lower than ISET-PI’s GDP forecast for the quarter.

In August 2016, the average cost of cooking one standard Imeretian khachapuri increased to 3.15 GEL, which is 4.8 % higher month-on-month (m/m, that is compared to July 2016), but 9.6% lower year-on-year (y/y, compared to August 2015).

In the last two decades, happiness has moved into the focus of economic inquiry. Frey and Stutzer (“What Can Economists Learn from Happiness Research”, Journal of Economic Literature 20, 2002, pp. 402-435) argue convincingly that gross domestic product (GDP), unemployment, inflation, and many other indicators of economic performance are primarily interesting because they are correlated with the well-being of people.

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.