TBILISI – Georgia’s annual inflation edged up only marginally in June, rising from 5.7% to 5.8%, according to TBC Capital’s latest macroeconomic update. However, heightened geopolitical tensions in the Middle East have increased uncertainty surrounding the country’s inflation outlook and monetary policy.
After adjusting for seasonal factors, monthly inflation accelerated from 0.3% in May to 0.6% in June. Despite this modest increase, TBC Capital says the current trajectory remains broadly consistent with its baseline forecast of 5.1% inflation by the end of 2026.
Since inflation is expected to remain above the National Bank of Georgia’s target throughout the year, TBC Capital continues to expect the central bank to keep its key policy rate unchanged at 8.25%. The National Bank has repeatedly stated that the easing of the current inflationary shock remains a prerequisite for any future rate cuts.
Rising geopolitical risks
TBC Capital notes that renewed military tensions between Iran and the United States have become a key risk factor. As highlighted in the firm’s previous publication, June’s agreement between the two countries was not considered a definitive resolution, leaving considerable uncertainty despite the positive reaction from global financial markets.
Given the latest escalation, it remains unclear whether the renewed conflict will prove temporary. Should tensions persist over a prolonged period, increasing global price pressures, TBC Capital says its inflation forecast could move closer to its previous projection of 6%. The firm notes that last month’s downward revision was largely driven by a sharp decline in global commodity prices. As uncertainty increases, so does the likelihood that tight monetary policy will remain in place for longer.
Fuel remains the main driver of inflation
Fuel continued to be the largest contributor to annual inflation in June. However, price changes for bread, electricity, cigarettes, and internet services also had a notable impact.
While these components currently account for a significant share of inflation, TBC Capital expects their contribution to gradually diminish as base effects fade.
The report also notes that underlying inflation indicators continue to suggest relatively elevated, though still moderate, price pressures. Median inflation increased from 1.9% in May to 2.5% in June, yet remained below the National Bank’s 3% inflation target for the third consecutive year.
Trimmed inflation measures and diffusion indices indicate that although certain product categories continue to make a significant contribution to overall price growth, inflationary pressures have become more broad-based. Service prices have also increased, mainly due to higher costs associated with housing and transportation services.
Oil and food prices remain key risks
According to TBC Capital, oil and food prices continue to represent the most important short-term inflation drivers.
Global oil prices had been declining in recent months, falling even below pre-conflict levels, while signs of lower fuel prices have already emerged in Georgia’s domestic market. However, following the renewed escalation in the Middle East, Brent crude rose from USD 72 per barrel on June 25 to approximately USD 78 by Wednesday morning.
Given the historically strong correlation between international and domestic fuel prices, TBC Capital expects imported inflation—which increased from -0.7% in February to 6.1% in June—to ease in the coming months if the conflict remains limited in scale. Nevertheless, the report emphasizes that risks have increased significantly. Even if Brent stabilizes around USD 78 per barrel, the current pricing environment would still allow for some reduction in domestic fuel prices.
Uncertainty also remains high regarding global food prices. Although international prices for food and fertilizers have started to decline following an initial spike triggered by the latest escalation, food is expected to remain the largest contributor to inflation throughout 2026, with price pressures gradually easing over time.
Economic growth remains resilient
Georgia’s economy expanded by 6.4% year-on-year in May, slightly above April’s 6.2% growth rate and broadly in line with expectations.
At the same time, TBC Capital notes that cashless payment data for June points to some moderation in economic activity. After adjusting for seasonal factors, both resident and non-resident real cashless spending improved compared to April but declined somewhat relative to May.
Meanwhile, the sharp increase in flight volumes at Tbilisi and especially Batumi airports since the end of June suggests stronger tourism demand in July.
Strong foreign currency inflows support the lari
TBC Capital also highlights that the excess supply in Georgia’s foreign exchange market, which has supported the appreciation of the Georgian lari and the accumulation of international reserves in recent months, likely persisted through June and early July.
The report notes that increased purchases of Georgian government securities by non-residents made a significant contribution to foreign currency inflows in June, raising foreign investors’ share of government bonds to 8.3%, the highest level since February 2022.
As expected, Georgia’s international reserves continued to increase, reaching USD 7.1 billion by the end of June—almost 52% higher than a year earlier. The National Bank also purchased an additional USD 100 million worth of monetary gold, increasing gold’s share of total reserves to 14.2%.
TBC Capital expects reserve accumulation to continue in the coming months, although at a more moderate pace.
The full publication is available on the TBC Capital website (Hyperlink: https://tbccapital.ge/ge/publications/all-publications/singleview/30007573-macro-update-georgia).
