Just how bad is inflation in Turkey? It depends on who you ask – Aljazeera

« Government figures say annual inflation topped 36 percent last month, but some think that number is far short of the mark » reports Umar Farooq in Aljazeera.

At a produce stand in Istanbul’s Balat neighbourhood this week, the owner, Selamet, took a break from serving customers to talk about something that’s affecting everyone in Turkey – rising food prices.

“Some things have not gone up as much as others, because their production has kept up, but others, especially the most often bought items here have gone up more,” Selamet told Al Jazeera.

Prices of popular items including potatoes, onions, eggplant, green beans, and other vegetables have soared more than 50 percent, he said.

Food is not the only thing taking a bigger bite of his customers’ incomes. The government agency tasked with tracking inflation – the Turkish Statistical Institute (also known as TUIK or TurkStat) – said this week that the consumer price index, or CPI, which measures changes in the prices of a basket of commonly purchased goods and services, soared to more than 36 percent last month compared to a year ago.

That is the sharpest inflation spike in nearly 20 years. But Selamet thinks even that staggering figure underestimates the severity of price pressures bearing down on him and his customers.

“They [TurkStat] must be picking and choosing which products they include, or which markets they go to to record prices,” Selamet said. “They are a government department after all, and if they say inflation is much higher, the government would also have to pay more wages and pensions [to retirees]. What we really need is someone else to come up with a measure of inflation.”

He is not alone in thinking that. A survey published this week by MetroPoll research found that more than 90 percent of respondents think annual inflation is at least 50 percent or higher. More than 60 percent of respondents peg it at 100 percent or higher.

Social media accounts dedicated to documenting the price hikes have sprung up, including Inflation Diary, a Twitter account with more than 100,000 followers that posts photos from the public showing changes in price tags in grocery stores.

Last month, social media users began sharing videos of an unidentified man seen running naked through the streets of the southeastern city of Sanliurfa at night, shouting “Inflation, Inflation!” The man appeared to be recreating scenes from a 1985 Turkish film, Naked Citizen, centred around a government worker who, unable to cope with rising costs, takes to the streets at night to protest inflation.

Nongovernment assessments of inflation back public perceptions. The Inflation Research Group (ENAGroup) an academic project that has independently tracked price changes since 2020, publishes its own consumer price index – E-CPI – every month within hours of TurkStat’s.

According to ENAGroup’s calculations, Turkey’s annual inflation rate was 82.81 percent in December – more than double the official rate.

TurkStat insists its CPI accurately measures inflation. Last year, it filed a criminal complaint against ENAGroup, claiming the independent researcher was misleading the public. Turkish authorities have since opened an investigation into ENAGroup.

TurkStat has reason to be concerned over what could be inaccurate independent inflation measurements, said İbrahim Karataş, a columnist with the Daily Sabah newspaper and general manager of the ANAR polling company, which also provides political parties, including the ruling Justice and Development Party (AKP), with election metrics.

“In every poll, you can see the main problem is the economy, and actually, inflation,” he told Al Jazeera.

The public’s increased focus on inflation can warp measurements from TurkStat, he said, adding that the government agency’s CPI more accurately reflects economic reality and that the average consumer is not necessarily well placed to estimate price pressures with as much precision.

“Sometimes some prices are rising high and some are going down, and sometimes all prices are rising high and then they go down, but we only look at the ones that are rising, because it takes your attention, because it rose,” he said. “When a price for something is low, you see it as normal, but when it is high, you react to it.”

The lira crash and inflation

While nations around the world have been grappling with price spikes caused by supply chain snarls and shortages of raw materials, inflation in Turkey has been exacerbated by a dramatic fall in the value of the Turkish lira, which lost more than 40 percent of its value against the United States dollar last year.

The lira’s crash in the final quarter of 2021 was triggered by a series of central bank interest rate cuts championed by Turkish President Recep Tayyip Erdogan, who insists that lower interest rates combat rising inflation – a view that runs counter to mainstream economic theory, which holds that lower borrowing costs typically increases price pressures.

While Erdogan’s government has presided over a dramatic increase in Turkey’s economic growth over its 19 years in power, with elections scheduled for next year, the president this week acknowledged the burden inflation is placing on Turkish voters while reassuring them that soaring prices will be brought to heel.

“We are in sorrow to see our yearly inflation hitting 36 percent,” said Erdogan. “Nevertheless, as a government that managed to decrease inflation to 6 percent, we will repeat our success to protect Turkish citizens from financial troubles.”

To help cushion the blow of rising prices, the government this month raised the minimum wage by 50 percent and boosted the government match on private contributions to public pensions. In late December, in a bid to stem the lira rout, the government also launched a scheme that shields holders of lira deposits against losses if the currency’s slide exceeds bank interest rates. Deposits in that scheme have reached 84 billion lira ($6.21bn), the country’s finance minister told state news agency Anadolu on Tuesday.

Still, in a measure of Turks’ confidence in the lira, more than 60 percent of all bank accounts in the country are currently in foreign currencies like the dollar or euro. The minimum wage hike was also accompanied by price increases in regulated sectors of the economy. Electricity tariffs have shot up by 125 percent for higher-demand customers and 50 percent for lower-demand residential customers. Natural gas prices have gone up 50 percent for industrial use and 25 percent for residential use. And the cost of public transportation in Istanbul has seen a 36 percent increase.

Politics and inflation

Turkey’s opposition parties have seized upon the discrepancy between official TurkStat inflation numbers and what many members of the public and experts think.

Ali Babacan, a former Erdogan ally who served under him as finance minister and now heads the Democracy and Progress Party, called TurkStat the “Institute for Adjusting Numbers” in a tweet shortly after the December inflation figures were announced.

Last month, during a live television broadcast, the head of the largest opposition party, Kemal Kılıçdaroğlu, attempted to visit TurkStat’s head offices in the capital Ankara to inquire about how inflation is being calculated, only to be turned away.

Independent inflation measures have also drawn government scrutiny. ENAGroup is currently facing a probe by authorities after TurkStat said the research project is confusing the public by calling its measurements a “consumer price index”.

ENAGroup says its inflation gauge – which started as a doctoral thesis – is performing a valuable public service.

“We started because we thought there was a missing part to the story,” said Veysel Ulusoy, a professor of economics at Yeditepe University in Istanbul who heads the project.

“Every day, we can measure things like the interest rate, or the Borsa Istanbul [stock] index, or the stock index on Wall Street, but the missing point was the daily inflation rate, simply because the daily inflation rate was not only being affected by the daily changes in economic life, but it was also affecting all of them,” he told Al Jazeera.

Drawing inspiration from the Billion Prices Project, an academic initiative launched in 2008 by Harvard University and MIT, Ulusoy’s team of economists and engineers use software to trawl the web, collecting around 250,000 price points from Turkish retailers daily, and more than 700 million monthly, Ulusoy said.

The group crunches the high-frequency data using the same methodology as TurkStat. Prices are put into categories, like food, transportation, communication, or recreation and culture. Each category is then weighted by how much an average consumer would spend on it to compile a “basket” of goods and services – for instance, 26 percent for food and 16 percent for transportation. Finally, about 20 percent of the basket prices come directly from TurkStat, for products like alcoholic beverages, or health and education costs, which are regulated by the government.

The main difference between ENAGroup and TurkStat, said Ulusoy, is that his project measures and publishes prices daily as well as monthly, and that TurkStat sends its own researchers into the streets to collect prices, rather than using big data tools. Those software calculations, Ulusoy said, are spot-checked by his team. He insists they accurately reflect inflation in Turkey.

For most of the last year, ENAGroup’s inflation measures far exceeded TurkStat’s official gauge. Ulusoy said he now meets regularly with government officials in Ankara to explain his research. He said he does not expect the investigation to become more serious, but if it does, he thinks it would lead to a healthy public comparison with official inflation figures.

Economist Atilla Yesilada, an analyst at GlobalSource Partners who has studied inflation patterns in countries across the globe, said the government has plenty of incentive to keep official inflation figures lower – and to challenge alternative measures like ENAGroup’s – because public sector wages as well as pensions for retirees, for instance, are directly calculated based on inflation rates. Any hike in the official inflation rate, therefore, ends up costing the government.

And though lower official inflation figures may signal to observers outside of Turkey that the economy is not doing as badly as it may be, public perceptions inside Turkey are not as easy to manage, Yesilada told Al Jazeera.

“We live with inflation in Turkey,” he said. “The biggest components of what we spend money on are food, rent, and transportation, and these are the kind of prices the average consumer faces on a daily or monthly basis. So if you are lying to them, it’s very obvious. It undermines trust in Erdogan and the AKP.”

He further warned that the Turkish public’s perceptions of inflation can also drive prices higher. “If people think inflation is close to 100 percent, anyone who has any bargaining ability, say in paying salaries or wages, or the prices they charge, pretends inflation is 100 percent,” he said. “So going forward, that is a disastrous situation.”

Karataş, who has discussed the inflation issue with TurkStat staff, said the body is not deliberately trying to manipulate any statistics, and in fact is following the same globally accepted methods it has used for decades.

“It’s not the case that Turkey is different in terms of its measurements,” he said. “If TUIK [TurkStat] is wrong, then the measurement is wrong for everyone [in the world], and if it is correct, then it is correct for everyone. In the end, we have to prove that someone is wrong. If you don’t believe TUIK, then you should prove it.”

Umar Farooq in Aljazeera, January 7, 2022, image: Reuters