It all comes down to low inflation – low interest


What I have been insistently saying since July this year has become quite a reality as of Monday. Announced lower than expected on an annual and monthly basis, the CPI rates seem to be between 1.5% and 2.0%. The gap between the cost of living is growing by the day.


There are annual and monthly increases in the prices of essential items such as transport, food, household goods, healthcare, and tuition well above the CPI rates. These are the items that directly affect our lives. We should not be surprised to see those who are extremely upset by the announced CPI figures. This is what I meant when I said, “Everyone should calculate their own inflation index”. Because official figures no longer fully reflect the reality, including the monthly PPI, which was also announced 50% lower than expected.


On the other hand, “core inflation”, which includes the goods and services we buy every month regardless of the season, climbed above expectations. The reason as to why the CPI has unexpectedly taken a downward turn is the decline in seasonal prices. Now the question is: Who would benefit from a lower CPI?


“Everyone should calculate their own inflation.”


From rent to various services, prices are determined based on the official inflation figures, so the lower the CPI the better for consumers. But a big problem arises when it also applies to wage adjustments. Because no wage increase is high enough to offset the devastating effects of the high cost of living. Therefore, it is necessary to take a correct approach when analysing the results and the side effects of the efforts to reduce inflation.


But I should also emphasize that calculating inflation rate using CPI may create some negative side effects, in terms of deciding how to use capital or savings. Because the interest rates are well behind the high cost of living and ever-increasing costs. What’s worse is that even buying foreign currency does not protect any of us against rising costs. As a result of this, stocking up trend among producers and consumers continues at a frenzied pace.


Again, individuals and institutions should calculate their own inflation indexes. First, they can start calculating the 25 most prominent items among the cost elements. Then they can increase the number of items for a more precise calculation. This method would help them make a more accurate calculation to see whether their capital or savings are hedged against rising costs.


So, it is understood that the economy officials in Turkey are set to make every effort to ensure a CPI rate between 60% and 65% by the end of the year. However, if they try to cut rates again because of the latest inflation figures, the mismatch between the price increases and the CPI data may get out of control.