Tbilisi (GBC) - TBC Capital published macroeconomic update. According to the document, TBC Capital expects 2025 inflation to stand at 4% from the current 3.4%, though, in case of higher pressures, recent undervaluation and excess USD supply should probably manifest in more pronounced GEL/USD appreciation rather than mainly ongoing reserve replenishment.
"This time, we take a closer look at inflation and dive deep into the major drivers through various channels such as product origin, type, category, as well as underlying measures;
Inflationary pressures have somewhat increased in the past few months, although the recent drop in international commodity prices has likely not fully been translated in inflation yet;
However, not surprisingly amid strong growth, domestic and service inflation have been on the rise lately, an important development to keep an eye on in the context of underlying trends;
On the other hand, pressure from the jobs market does not appear strong, as the growth rate of unit labour costs has dipped below what the 3% target would imply, especially if measured in real terms which, in our view, is more relevant to assess future inflationary pressures;
With respect to imported inflation, the recent depreciation of the GEL real effective exchange rate needs to be considered;
This is particularly important as, per our research, around 75% of total variance in Georgia’s inflation has been explained by a common regional factor;
Overall, assuming a broadly neutral stance on the GEL, we expect YE-2025 inflation to stand at 4% from the current 3.4%, though, in case of higher pressures, recent undervaluation and excess USD supply should probably manifest in more pronounced GEL/USD appreciation rather than mainly ongoing reserve replenishment", - the document reads.
