Taking into account that the increase in wheat price was
already incorporated in our projection, we keep our earlier outlook broadly
unchanged. Assuming only slight appreciation of the GEL against major trading
partners’ currencies next year, the Brent to stay around 80$ per barrel,
broadly unchanged prices for other relevant commodities, real GDP growth to be
10.5% in 2021, and 6.0% in 2022, we expect 2021 year end CPI inflation at 13.8%
with close or below 3% target outlook for 2022.
At the same time, gas tariffs in Georgia historically are more linked to oil price dynamics rather than spot prices of natural gas in international markets. Therefore, if any, much less increase is expected. Also, in August, producer price index was up only slightly compared with the previous months, supporting our view of expecting CPI inflation moderation as the dynamics in the producer prices often is a leading indicator for the former one. Furthermore, we do not see inflation pressures arising from unit labor costs and the most important, we are still betting on the broadly unchanged GEL.
In September, for the first time this year inflation print came in at a low level though yet on a monthly basis only. While annual consumer price increase was 12.3%, seasonally adjusted monthly annualized inflation stood at -2.5%. As expected, despite higher commodity prices and rebound of the economy, the GEL has curbed the price increase with some time lag.
On the GEL rates side, although the annual inflation is still high and is expected to increase further in December due to low base effect, we believe September inflation dynamics together with the recovery in inflows make our arguments for no further rate hikes this year and rate cuts in 2022 scenario even stronger.