On April 4, the Turkish Statistical Institute (TurkStat) announced Turkey’s monthly inflation rate for March at 5.46 per cent and the annual interest rate at 61.14 per cent. These figures were unsettling for the general Turkish public, deeply concerning taxpayers and economists alike.
Burdened by political instability, diplomatic crises, President Recep Tayyip Erdogan’s interference in independent institutions, and repeated cuts to the interest rate, the Turkish lira has lost more than 97 per cent of its value against the US dollar since January 2021. This has driven up the price of imported goods and resulted in significant increases in taxes and utility bills for everyday Turks. Experts warn that the poor are paying the highest price for Turkey’s economic crisis as the prices of basic goods and services continue to skyrocket.
Controversy over the official statistics
While the announced inflation rates are obviously alarming in and of themselves, there is more to the story. Some discrepancy between the perceived and the officially measured inflation is seen in economics literature and can be expected. However, there is a peculiar controversy surrounding the accuracy of the data TurkStat provides in recent years and it is being questioned by many experts and market observers.
The inflation rates for March announced by an independent inflation research group, ENAG, are 11.93 per cent monthly and 142.97 per cent yearly. This is nearly twice as high as the TurkStat rates.
There is a considerable gap between those two statistics. But the official inflation rates affect the consumer beyond being some seemingly under representative statistic of an economic indicator. For many Turkish workers, an official inflation rate that is significantly lower than the actual rate would mean that their raises in wages would be lower than the increase in prices, hence their purchasing power would actually decrease.
The Turkish government is apparently uncomfortable with the controversy surrounding the official data. According to a draft law seen by Bloomberg, Turkish economic researchers who publish unofficial data on indicators without seeking the approval of TurkStat first could face up to three years in prison.
Conflicting consumer and producer price indices
The above statistics are based on the prices of consumer goods (the consumer price index or CPI). But what about the price increase producers face, namely the producer price index (PPI)?
According to TurkStat, Turkey’s domestic PPI in March was 9.19 percent and 114.97 percent annually. This puts it at a level twice as high as the annual CPI.In economics literature, increases in the PPI and CPI do not have to perfectly match because the baskets of products used for calculations aren’t the same. However, the steadily increasing gap between the CPI and PPI over the last couple of years may indicate another challenge.
The fact that the officially reported PPI is significantly higher than the CPI may be seen as a sign of the announced CPI’s unreliability, hence actual inflation rates may be higher than reported. Another interpretation paints an even grimmer picture: increases in producer prices may not have yet reflected in consumer prices. As the price increase producers face eventually catch up on the prices of consumer goods, even higher rates of inflation are to be expected in the future.
In response to the worsening economic conditions and the controversy over official data, Erdogan has fired three Central Bank governors and two TurkStat chairs over the last two years. The government is also planning to ban any alternative statistics that would undermine the economic picture presented by TurkStat. As Erdogan refuses to utilize basic tools to effect inflation – namely by raising the interest rates – and continues to challenge the independence of the Turkish Central Bank, the Turkish economy’s outlook is grim.