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Inflation and Adjustment of Relative Prices in Georgia

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  • Jacek Cukrowski
  • George Kavelashiwli

Abstract

The paper focuses on the dynamics of relative prices of goods and services in Georgia in the period of relative macroeconomic stabilization i.e., in years 1996–2001. Structure of Georgian consumer price index (CPI) is described in details and an analysis of the dynamics of relative prices is presented. It is shown that inflation is positively correlated with the variability of relative prices as measured by the standard deviation of the distribution of prices and also with the third moment (skewness) of the overall distribution of prices. Consequently, the efforts to minimize relative price variability should be considered an important part of anti-inflationary policy (the main recommendation for conducting anti-inflationary policy should include frequent increases of administratively regulated prices slightly in excess of overall inflation so that upward adjustments can take place without inducing large price variability). Moreover, based on the examination of basic 8 groups of goods and services and 56 subgroups included into basket used for CPI computation, it is shown that in the period under study the general price level increased mainly due to the increase in prices of goods with administrative regulated prices (except "alcoholic beverages"). In contrary, free market prices for food and beverages (except "fruits and vegetables") and other goods and services (except "personal care and effects") increased much less than the general price level in the country, i.e., relatively decreased.

Suggested Citation

  • Jacek Cukrowski & George Kavelashiwli, 2002. "Inflation and Adjustment of Relative Prices in Georgia," CASE-CEU Working Papers 0042, CASE-Center for Social and Economic Research.
    • Handle: RePEc:sec:ceuwps:0042
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    References listed on IDEAS

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    1. Domberger, Simon, 1987. "Relative Price Variability and Inflation: A Disaggregated Analysis," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 547-566, June.
    2. Ball, Laurence & Mankiw, N Gregory, 1994. "Asymmetric Price Adjustment and Economic Fluctuations," Economic Journal, Royal Economic Society, vol. 104(423), pages 247-261, March.
    3. Hasan Bakhshi & Andrew Haldane & Neal Hatch, 1999. "Some Costs and Benefits of Price Stability in the United Kingdom," NBER Chapters,in: The Costs and Benefits of Price Stability, pages 133-198 National Bureau of Economic Research, Inc.
    4. Robert J. Shiller, 1997. "Why Do People Dislike Inflation?," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 13-70 National Bureau of Economic Research, Inc.
    5. Vining, Daniel R, Jr & Elwertowski, Thomas C, 1976. "The Relationship between Relative Prices and the General Price Level," American Economic Review, American Economic Association, vol. 66(4), pages 699-708, September.
    6. Stanley Fischer, 1981. "Relative Shocks, Relative Price Variability, and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 12(2), pages 381-442.
    7. Eytan Sheshinski & Yoram Weiss, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 287-303.
    8. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(2), pages 171-196.
    9. Mussa, Michael L, 1977. "The Welfare Cost of Inflation and the Role of Money as a Unit of Account," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 9(2), pages 276-286, May.
    10. Fischer, Stanley, 1982. "Relative price variability and inflation in the United States and Germany," European Economic Review, Elsevier, vol. 18(1), pages 171-196.
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    Keywords

    inflation; relative prices; Georgia;

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