Inflation Forecast in Georgia

In recent years, price changes in Georgia have followed different trends. In 2021-2022, inflation was high, often approaching 10%, driven by rising prices in international markets, fluctuations in the exchange rate of the Georgian lari, and domestic economic factors. However, in 2023-2024, the pace of price increases slowed significantly, with the inflation rate reaching only 2% by the end of the year (source: Geostat).

According to the National Bank of Georgia, inflation is expected to rise again in 2025 and reach 5% by the third quarter. Several key factors could contribute to this increase. First and foremost, changes in global energy and food prices directly impact Georgia. Fuel and wheat prices are particularly significant, as they have a major effect on the country’s economy. A rise in global oil prices automatically leads to higher transportation and logistics costs, ultimately increasing the production costs of goods.

Another crucial factor is the exchange rate of the Georgian lari. As a small economy, Georgia is highly dependent on imported goods. If the lari depreciates, foreign currency-denominated products become more expensive, which in turn drives inflation higher. The stability of the lari depends not only on domestic economic conditions but also on global financial markets.

Domestic demand also plays a role in inflation. If household incomes increase and spending rises, demand for goods grows, which may encourage businesses to raise prices. In 2024, Georgia experienced a high rate of economic growth, but according to all major forecasts, this growth will slow in 2025. Typically, an economic slowdown helps reduce inflation, as declining demand prevents businesses from further increasing prices. However, in Georgia’s case, inflation may be driven by other factors beyond a slowdown in domestic economic activity.

Fiscal policy, including government spending and taxation, is another important factor in determining inflation. If the government increases spending, particularly on infrastructure projects, it can boost economic activity and accelerate inflation. Conversely, if government expenditures are reduced or taxes are increased, this can lower demand and slow inflation.