Surprised by inflation data?

The late Professor Alkin did not approve criticism of statistical institutes. According to him, no one would dare to willingly provide misleading data as the truth always comes out.

The same issue was raised last night on television during our program with Yalın Alpay and Ömer Rıfat Gencal. Mr. Gencal and I said that the latest CPI seems a bit confusing as inflation rate in August 2018 had hit 2,3%, exceeding typical historical levels. So, it would probably not turn out to be as high as it did last year.

However, the fact that Istanbul Chamber of Commerce Index has unexpectedly turned out to be higher than 2% led to expectations that CPI would hit a percentage between 1% and 1, 5% as well. But the figure has turned out to be lower than 1%. Days ago, I told you that annual inflation rate would fall to around 15 percent, which was a spot-on guess indeed. When I expressed my surprise about CPI data on television, an expert for whom I have so much respect has posted the following message on one of my social media accounts:

“Inflation turned out to be lower than expected for the following reasons:

  1. Decline in cumulative exchange rate effect,
  2. Relative stability in exchange rates,
  3. Decline in unprocessed food prices,
  4. The fact that demand conditions still show exhibit supporting behaviour for decline in inflation
  5. Global circumstances (decreasing pressure on commodity and import prices)

No need to attack TurkStat!

Given the message I mentioned above was posted by someone whom I respect too much, I decided to take another hard look at my posts to see whether or not I really expressed strong criticism of TurkStat. Having seen that I kept criticism within limits, I felt relieved as I know that I would never meaninglessly attack a respectable institution as TurkStat. The values my father taught me would never let me do such a thing anyway. Nevertheless, I am still concerned about the growing gap between the cost of living and inflation rate.

“Will CBRT cut rates by how much?”

Last night on television, Yalın Alpay took a completely different approach to the matter: “People might have to make peace with any data presented to them, when thorough data verification is not possible.”

Then, he added, “After a while, ordinary citizens would start to believe that this mistake was made for the greater good even though the data they were presented with was twisted and crooked”.

In history, there are many examples of incidents involving misleading statistics. However, I find it utterly unrealistic, even foolish, to expect good outcomes by furnishing deceptive data.

It will not be possible for us to measure the impact of consecutive price hikes on September inflation rate with the unaided eye, because the negative basis effect of the last year will be over already. Thus, a detailed and thorough analysis will be required.

Here’s the risky part: If price hikes continue at such a pace, we will be able to benefit from the basis effect only for a short period of time. As of December, we may have to face inflation again. CBRT will have to choose between GDP growth and inflation on the 12th of September. My guess is that the Central Bank will choose growth, hence a rate cut by 250-300 bps.