Key Takeaway

Faster euro area inflation increases the risk of higher import and financing costs for Georgia, but the European inflation rate does not pass directly into Georgian prices. Exposure depends on the product purchased, invoice currency, the lari exchange rate and the share of higher costs absorbed by business margins. Georgia needs to monitor actual procurement costs and distinguish pressure transmitted through Europe from a global shock affecting both economies.

European prices in a Georgian business budget

The Financial Times edition of 19 October discusses euro area economic resilience against higher energy costs and possible monetary tightening. For Georgia, the operational questions concern the European supplier’s invoice, the amount of lari needed to pay it and the cost of financing inventory. Answering those questions is more useful than applying Europe’s headline inflation rate mechanically to Georgian retail prices. 

Europe is not a single pricing area. The European Union and the euro area are different groups, and not every EU member uses the euro. Buying a European product does not necessarily mean paying in euros: a Georgian company may have a dollar contract or purchase through an intermediary. Exposure therefore starts with the invoice and contractual terms before it is connected to macroeconomic indicators.

What the September figures establish

Eurostat’s final release on 16 October put euro area annual inflation at 3.8% in September, following 3.2% in August. According to calculations by BTU researchers, this is an increase of 0.6 percentage points. Energy contributed 1.71 percentage points and services 1.52 percentage points to annual inflation. These are contributions to the total, not the components’ own inflation rates. 

Georgia’s National Statistics Office, Geostat, reported September annual inflation of 5.6% and monthly inflation of 0.4%. Transport prices increased 18.7% year on year, contributing 2.2 percentage points to the annual total.  The euro area harmonised index and Georgia’s national consumer price index have different baskets and methodologies. Showing them together provides context; it does not identify a causal relationship.

Table 1  Key indicators

Sources [2]–[6]. Price indices differ methodologically; policy rates are not commercial lending rates.

How pressure can reach Georgia

The first channel is the price of the actual product. A European manufacturer facing higher energy and transport costs may revise its export quotation. However, European consumer inflation is not an index of Georgian import purchase prices. It includes local services that Georgia does not import. Product category, discounts, order size and delivery terms determine the relevant exposure.

The second channel is the exchange rate. Even an unchanged euro invoice requires more lari if the euro appreciates against Georgia’s currency. A stronger lari can offset part of a supplier’s price increase. Stability against the dollar does not establish stability against the euro, since the euro also moves against the dollar. Foreign prices and currency conversion interact multiplicatively; adding their percentage changes misses the interaction.

A third channel is a common global cost shock. Higher oil or shipping costs may affect Europe and Georgia at the same time. In that case, Europe is not the original cause of Georgian inflation. Energy supply arrangements also differ. The International Monetary Fund’s May country report notes that long-term natural gas import contracts with Azerbaijan limit the corresponding inflation impulse. This observation should not be extended to every fuel or electricity cost. 

Why the trade relationship matters

The EU delegation reports that EU goods exports to Georgia were approximately €4.3 billion in 2025, while goods imports from Georgia were approximately €0.9 billion. European supplies included machinery and transport equipment, chemical products and other goods. These historical trade values do not describe 2026 volumes or measure inflation pass-through.

Exposure extends beyond finished goods on shop shelves. A higher price for imported packaging, a replacement part or machinery can increase a Georgian producer’s costs. The effect may reach selling prices later if the business first uses existing inventory. Identifying a sector’s vulnerability requires its procurement composition; aggregate trade figures cannot provide that detail.

A scenario for a Georgian importer

Consider a hypothetical Georgian company buying €100,000 of European goods in one purchasing cycle. At an assumed initial exchange rate of GEL 3 per euro, the invoice costs GEL 300,000. Assume the supplier raises its price by 4%, with the order quantity unchanged. The 4% is an illustrative assumption, not the euro area inflation rate applied to imports and not an observed supplier quotation.

According to a scenario estimate by BTU researchers, the bill becomes GEL 312,000 at the unchanged exchange rate. If the euro also appreciates by 5% against the lari during that cycle, the rate becomes GEL 3.15 and the cost reaches GEL 327,600, or 9.2% above the starting point. If the euro instead depreciates by 5%, the GEL 2.85 rate produces a cost of GEL 296,400, which is 1.2% below the initial bill. Taxes, bank fees, insurance, freight and financing are excluded.

These results are not changes in retail prices. An imported input represents only part of total cost, alongside local expenses and the company’s margin. A business might absorb some pressure, reduce discounts or change its product mix. The scenario’s 9.2% therefore cannot be used as a forecast of Georgian inflation.

Table 2  Hypothetical procurement cost

Source: scenario calculations by BTU researchers. Fixed quantity in one purchasing cycle; additional costs excluded.

Financing costs and European demand

On 10 September, the European Central Bank raised its key interest rates by 0.25 percentage points; the deposit facility rate became 2.50% from 16 September. This is an enacted decision, while further moves depend on incoming data. A Georgian company needs to know whether its euro financing is linked to a floating market benchmark and when the contract resets. The price of an existing fixed-rate contract does not automatically change that day.

European policy rates do not directly determine lari lending rates. The National Bank of Georgia kept its refinancing rate at 8.25% on 9 September, highlighting the risk that higher energy costs could spread into other prices and expectations.  Domestic credit conditions also reflect Georgia’s monetary environment, banks’ funding costs and borrower risk.

Demand is a separate potential channel. European households facing higher essential expenses might spend less on travel or other purchases. This could affect Georgian tourism and exports, but the sources used here do not establish its realised magnitude. Conversely, a stronger euro could increase some European visitors’ purchasing power in Georgia. The net effect requires evidence on incomes, exchange rates and the composition of demand.

Opportunities and practical decisions

More expensive European production could create an opening for certain Georgian products if their costs remain relatively stable and their quality meets market requirements. A producer reliant on imported inputs would not automatically gain that advantage. A genuine export opportunity needs a buyer’s order, reliable delivery and standards compliance; a price difference is only an initial signal.

For importers, a practical starting point is to record the invoice currency and price revision dates of important purchases. Adding inventory turnover and payment schedules reveals when higher product costs might coincide with a greater need for cash. Comparing alternative suppliers must also include quality control and delivery reliability: a cheaper quotation is not necessarily a cheaper completed purchase.

Household exposure depends on individual spending baskets. A family allocating more income to necessities can experience different pressure at the same headline inflation rate. Public policy needs to assess targeted support and competitive conditions while considering whether temporary assistance creates a permanent fiscal commitment. This article does not estimate the cost or effectiveness of a particular support programme.

Working capital needs particular attention. Even if selling prices remain unchanged temporarily, more expensive inventory requires additional cash. Accounting profit and available cash can diverge when suppliers must be paid before customers settle their invoices. Splitting purchases into smaller batches can reduce the immediate funding requirement but increase freight cost per unit. Buying large inventories in advance creates risks of slower sales and obsolescence. The appropriate choice depends on the goods, storage requirements and customer payment terms.

Price monitoring also requires comparable observations. Old and new supplier quotations need the same specification, quantity and delivery terms. A higher invoice can reflect changes in quality, order composition or additional services; treating the full difference as inflation would be misleading. Similarly, higher monetary turnover alone does not reveal whether a business sold more goods or the same quantity at higher prices. Recording prices and quantities separately supports better decisions.

BTU Researchers Assessment

According to an assessment by BTU researchers, the main European inflation risk for Georgia is the simultaneous movement of several costs: the supplier’s price, the lari required for a euro payment and the funding needed to complete the purchase. The scenario demonstrates how currency movements can reinforce or offset the same foreign price increase. Business resilience therefore depends on tracking contracts and cash flows alongside headline inflation.

This assessment describes transmission channels. It does not assign a share of Georgia’s September inflation to Europe. Such an estimate would require joint empirical analysis of product origin, prices, invoice currency, time lags and other shocks. The article does not present that econometric result.

Conclusion

European inflation is a material external risk for Georgia, visible through specific purchases, financing contracts and household budgets. Its strength cannot be reduced in advance to one number. Businesses can respond by understanding cost composition, calculating currency sensitivity and assessing demand before repricing. At the national level, European pressure needs to be distinguished from common global and domestic causes.

Data and Main Sources

[1] Financial Times – Market questions Week ahead, How resilient is the Eurozone economy, 19 October 2026, p. 9

URL: მომხმარებლის მიერ მოწოდებული გამოცემა / User-supplied edition
Dataset: No

[2] Eurostat – Annual inflation up to 3.8% in the euro area, 16 October 2026

URL: https://ec.europa.eu/eurostat/web/products-euro-indicators/w/2-16102026-ap
Dataset: No

[3] National Statistics Office of Georgia – Inflation Rate in Georgia, September 2026, 2 October 2026

URL: https://www.geostat.ge/media/83212/Inflation-Rate-in-Georgia,-September-2026.pdf
Dataset: No

[4] European Central Bank – Monetary policy decisions, 10 September 2026

URL: https://www.ecb.europa.eu/press/pr/date/2026/html/ecb.mp260910~314e508016.en.html
Dataset: No

[5] National Bank of Georgia – Monetary policy decision, 9 September 2026

URL: https://nbg.gov.ge/en/media/news/the-national-bank-of-georgia-decided-to-keep-the-monetary-policy-rate-unchanged-at-8-25-2
Dataset: No

[6] European External Action Service – The European Union and Georgia, 7 August 2026, trade figures for 2025

URL: https://www.eeas.europa.eu/georgia/european-union-and-georgia_en
Dataset: No

[7] International Monetary Fund – Georgia 2026 Article IV Consultation, Country Report No. 26/133, May 2026

URL: https://www.imf.org/-/media/files/publications/cr/2026/english/1geoea2026001.pdf
Dataset: No

[8] National Bank of Georgia – Monetary Policy Transmission Mechanism

URL: https://nbg.gov.ge/en/page/monetary-policy-transmission-mechanism
Dataset: No

This material is analytical and educational and does not constitute financial, investment, tax or legal advice. Appropriate professional advice should be obtained before a specific decision.

Prepared by the academic team of Business and Technology University and the BTUAI Research Team, Tbilisi, Georgia.