Growing Gap between the cost of living and inflation …

It is my duty to question things as an economist. When I do that I tend to ask myself questions out loud and invite people around to a brainstorming session.

We were all surprised by inflation rates, which were released yesterday. I know that we usually use the word “surprise” to describe positive developments or events. I’m not calling it a “shock” because the word “shock” is used to describe unexpected negative events. I just wanted to drop some hints for those who may want to use the word “shock”.

I said on TV and social media that someone must explain the reason behind the decreasing inflation rate despite vis-à-vis the high cost of living. As usual, I attracted some positive and negative criticism. What I exactly wanted to say was:

It’s genuinely hopeful that Turkey hits single digit inflation for the first time since July 2017. But, here’s the confusing part: We know that many developed countries, including Japan, Belgium, France, and UK, that face low inflation inevitably face a high cost of living as well. Accordingly, I consider the fact that Turkey is exposed to high cost of living despite its low inflation rate as a phenomenon. This very situation really needs an explanation.

“Are costs really falling?”

Although there’s a high purchasing power and high income levels in those countries, oppressed classes exist as well. In Turkey, on the other hand, there are a large number of people with very low income levels and financial difficulties even though Turkish people’s purchasing power is not very poor when compared to some countries. That is why everyday citizen can’t ‘feel’ a falling inflation rate.

So, some economy officials or the President of TurkStat himself urgently need to come out and explain, in simple terms, why there’s a decline in inflation rate in Turkey despite high cost of living. Otherwise, falling prices would not seem very credible to companies hence they will not price their products and services according to the inflation rate. Apparently, a very low annual rate of PPI doesn’t satisfy the manufacturers who have been facing 30 to 50 percent cost increase for the last year.

I do not argue whether the figures are correct or not but I do believe that government should manage the expectations and perceptions properly. The institutions that release inflation data must enlighten the public on these matters in the best way possible. Otherwise, Turkey will never manage to make the world have a positive perception of its falling inflation rate. Managing economy is not managing figures. It is the art of knowing how to manage expectations and perceptions properly.