Inflation and Emergency Plan…

Yesterday’s article provided a set of examples about emergency responses in case of fire. Some people asked me, “Do you have any suggestions for inflation?” Well, I have. Here are some useful suggestions to tackle high inflation:

First, let’s start with the diagnosis. The day before the CPI figure was announced, which turned out to be around 2%, I said that, mathematically, if the CPI remains between 1.5% or 2% each month until the end of the year, perhaps we can finish 2022 with around 60% inflation. Honestly, I didn’t expect this comment to be taken so seriously. While the prices went up by more than 4% in July, especially in Istanbul, the fact that the CPI was released as 2% was quite questionable indeed.

As I said before, monthly inflation rates must be between 1.5% and 2% so that the 60% target can be met, particularly considering that the positive impact of the base effect will disappear after September. This can only be achieved with stable exchange rates remain and a noticeable slowdown in core inflation. However, the TurkStat data shows that the increase in costs does not slow down and core inflation keeps going up each and every month.

“Calculate inflation yourself with more realistic living costs.”

Despite the inflation rate which turned out to be lower-than-expected due to seasonal effects, core inflation shows the rise in goods and services we buy regardless of the season and confirms the stickiness of prices. Although the CPI remained low in August, the prices that will soar in September may present a different situation to us, if core inflation continues to increase incessantly.

If TurkStat continues to announce a CPI around 2%, it will further lose its credibility and also endanger ours since, as economists, we are expected to use official statistics to base our assumptions on.

For this reason, I always say to businesses: “Calculate inflation yourself based on your own expenses and costs and prepare your financial statements accordingly”. Otherwise, medium-term revenue-cost projections will remain hypothetical. Businesses should run a retrospective analysis of previous cost increases and make projections about future increases accordingly. Obviously, it is difficult to make pinpoint estimations under the circumstances, not to mention the fact that TurkStat data won’t be much of a help either.

I think it would be quite wise for companies to urgently start calculating their own inflation.