Researchers say new model shows Turkish inflation well above official tally

Since last year, opposition lawmakers have raised questions about the accuracy of official inflation data, arguing that the published rate was lower than the market realities. (File/Shutterstock)
Short Url
Updated 22 October 2020

Researchers say new model shows Turkish inflation well above official tally

  • Since last year, opposition lawmakers have raised questions about the accuracy of official inflation data
  • Year-on-year inflation was 11.75% according to the official tally announced earlier this month

ISTANBUL: Turkish monthly inflation was more than triple the official rate in September, according to a new model developed by a group of academics and researchers based on more frequent data than the government statistics office.
Veysel Ulusoy, a professor at an Istanbul-based university and head of the independent Inflation Research Group (ENAG), said the model collects “several times more” price data than the official Turkish Statistical Institute (TUIK) tally, and is meant to complement it.
Since last year, opposition lawmakers have raised questions about the accuracy of official inflation data, arguing that the published rate was lower than the market realities.
According to ENAG’s first published finding, consumer prices in September rose 3.61% from the previous month, compared to TUIK’s calculation of 0.97% increase.
Year-on-year inflation was 11.75% according to the official tally announced earlier this month. ENAG has not yet published a year-on-year figure.
TUIK was not immediately available for comment.
“We observed price differences and volatility in almost all groups in the basket,” Ulusoy said in an interview. ENAG brings together academics from multiple Turkish universities.
“TUIK collects 550,000 prices for all the basket items in a month. ENAG calculations include several times more than that, constructing a richer set of data,” Ulusoy said.
Turkish annual inflation has remained in double digits this year despite a sharp economic contraction in the second quarter due to the coronavirus pandemic. High prices and a record low lira prompted the central bank to raise interest rates last month, and it is expected to hike again on Thursday.
The ENAG model can calculate inflation as frequently as every hour, meaning it can fill gaps for researchers and investors, Ulusoy said. It weighs items in the same way as TUIK, but excludes price data from health, education spending and alcoholic drinks.
The September calculation showed that school-related items had the most price spikes including computers, tablets and mobile phones, as well as children’s’ clothing and some agricultural goods.
Ulusoy said the ENAG model showed that tablets and computer prices were up more than 30% in September from August due to school reopenings, while TUIK put these items at around 4% month-on-month.
Last year opposition parties submitted parliamentary questions to Finance Minister Berat Albayrak over claims that TUIK tweaked inflation data for political reasons, claims dismissed as groundless by the head of the institute.


Wary Turks aren’t buying Erdogan’s economic promise yet

Updated 3 min 36 sec ago

Wary Turks aren’t buying Erdogan’s economic promise yet

  • Turks have faced mostly double-digit unemployment and inflation for four years

ISTANBUL: Turkish President Recep Tayyip Erdogan’s promise of a new economic era triggered a foreign-driven rally in the lira, but local investors have yet to be persuaded that policies they say have dragged on economic prospects for years will be reversed.

Interviews with local portfolio managers, gold sellers and business owners suggest Erdogan’s biggest challenge will be convincing Turkish individuals and companies he can turn last month’s rhetoric of market-friendly reforms into reality.

“There is a protective reflex,” built up after years of lira depreciation, said Baris Hocaoglu, general manager of Istanbul Portfoy, which manages 7 billion lira ($900 million) of assets and recommends a “cautious stance” to clients.

“Until the trust and stability are established, especially individual investors’ interest in gold and foreign exchange (FX) will continue.”

Local wariness also reflects other risks, including the resurgent coronavirus pandemic and signs of friction within Erdogan’s government that could worsen.

Turks have faced mostly double-digit unemployment and inflation for four years. Twice since mid-2018 the economy has sharply contracted while half the lira’s value has evaporated, setting both back compared with peers.

Early last month, convinced by allies his economic policies were failing, Erdogan installed a new central bank chief who hiked interest rates to 15 percent to boost the record-low currency.

Foreign investors, who hold only 5 percent of Turkish bonds, then chased some of the highest yields in emerging markets, pushing the lira 12 percent higher. That rally was partially reversed by Turks, who still face negligible deposit rates, buying $4 billion of gold and foreign exchange in two weeks.

Locals could warm to the lira if deposit rates are pulled higher by further monetary tightening, analysts say.

But for now they remain cool. Bankers say that for the first time in five years some Turkish energy importers are requesting market quotes for dollars and euros, while at Istanbul’s Grand Bazaar gold coins and jewelry are selling at $3 above international prices.

Mehmet Ali Yildirimturk, deputy head of a city gold shops association who operates at the Bazaar, said only “concrete actions” from the government will win trust. “Until then the local investor is still interested in physical gold,” he said.

A growing reason for caution is the coronavirus surge that has closed the doors to restaurants and schools, leaving people out of work as they were in a spring lockdown.

On Monday, Erdogan announced curfews and said the government is taking careful steps to avoid “a full-blown economic and social crisis.” Yet some in the vast small-business services sector see more signs of mismanagement.

“We are facing unjust competition and don’t have the big budgets like supermarkets Metro, Migros, Carrefour,” said Oktay Dagasan, 42, who runs a small Istanbul liquor shop that must now close early.

“We are finished economically, and are buried under credit card and loan debt,” he said. The government should give tax and rent support and “come out among the people and see what it is like,” he added.

In an interview, Numan Kurtulmus, deputy chair of Erdogan’s ruling AK Party (AKP), said high unemployment and current account deficits will be solved as part of the new approach but it would take time.

“We will have a difficult period ahead of us, especially because of the pandemic,” he said last week.

The AKP has slipped in opinion polls and one of its founding members resigned from a key post at the presidency last month after his calls for judicial reform were rejected by Erdogan and the leader of his nationalist coalition partner.

Some analysts say risks of an early election have risen along with prospects of economic sanctions, given a row with the EU over territorial waters and expectations of tougher US bilateral ties under a Joe Biden White House.

“The public closely follows the ongoing political conflict in Ankara, and senses that the end might be an early election or a costly conflict with the West,” said Atilla Yesilada, analyst at GlobalSource Partners.