Ankara struggles to control inflation rhetoric as Turkish distrust grows

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Shortly after a small group of Turkish academics began publishing their findings on inflation late last year, their data began to reflect what many Turks already suspected: prices were rising two times faster than the government claimed.

Ankara’s backlash was swift. In February, the Turkish National Institute of Statistics (TurkStat) filed a criminal complaint against the Independent Inflation Research Group (ENAG), which uses high-frequency data collection to track prices online and concluded that annual consumer price inflation is now around 40 percent. percent, compared to TurkStat’s 19.5 percent.

“Our aim was not to go against TurkStat or create an alternative inflation rate,” said Veysel Ulusoy, who teaches economics at Yeditepe University and leads a dozen volunteers, including doctoral students, mathematicians and accountants, in the independent inflation project. . “But the polarization is everywhere in Turkey, even in the statistics.”

An Istanbul prosecutor is currently investigating TurkStat’s accusation that the group violated rules requiring it to publish its methodology. Ulusoy said the ENAG research appeared in a peer-reviewed journal and called the allegation baseless, but charges are expected to be filed in the coming months.

ENAG’s legal problems show how delicate subject numbers are in Turkey. The government recorded the fastest economic growth in more than two decades in the second quarter of this year, but polls show many Turks feel left out of the boom as inflation and unemployment remain in double digits, a majority losing confidence in official figures. The cost of living, unemployment and the economy are at the top of the list of concerns of respondents in recent polls.

This reduces support for President Recep Tayyip Erdogan’s Justice and Development Party (AKP), which is now at an all-time low two years before the next elections. Polling agency Turkiye Raporu’s survey this month found its lowest rate of support for the ruling party to date, at 29.9%, and its director Can Selcuki said the dissatisfaction with the economy was the main driver of the crisis.

The central bank, which meets Thursday to set interest rates, is under pressure from Erdogan to cut borrowing costs, even though inflation has remained in double digits for most of the past four years. In March, the president appointed Sahap Kavciolgu, a former newspaper columnist who shares Erdogan’s unconventional view that high interest rates stimulate inflation rather than suppress it, as governor.

Erdogan has long exercised tight control over economic policy, hiring and firing senior officials by decree. He has sacked three central bank governors since 2019 for failing to cut interest rates quickly enough, and the ensuing uncertainty over the direction of monetary policy has eroded a third of the lira’s value. against the dollar.

Kavcioglu has so far resisted pressure from the president to lower the main interest rate by 19% as consumer prices continue to climb. After saying this month that the bank will now look at the lower core inflation figure when it comes to rate fixing, it could give in at Thursday’s meeting.

Turkish President Recep Tayyip Erdogan blamed “opportunists” for rising costs © Reuters

As economies around the world grapple with inflation amid large-scale stimulus spending during the Covid-19 pandemic, increasing consumer demand and supply constraints, in Turkey, Erdogan accuses the “opportunists” of rising costs. “By bringing inflation under control as soon as possible, we will prevent sky-high price hikes on the shelves,” he said last week.

In an effort to track down suspected fraudsters, government inspectors were dispatched to supermarkets last week, according to local media. “It fights the symptoms because the government doesn’t want to take the bitter drug,” said Atilla Yesilada, an analyst at Istanbul-based consultancy Global Source Partners. Controlling inflation “requires much higher interest rates and cuts in budget spending. And the inflation in rents and foodstuffs is due to structural problems that take longer than the AKP has to win the next election.

Other measures also show faster inflation than announced. Steve Hanke, professor of economics at Johns Hopkins University, uses a purchasing power parity indexed to the dollar’s exchange rate and found that consumer prices rose to double the TurkStat rate in June.

“Erdogan, like all politicians, wants low inflation, high GDP growth and low interest rates,” Hanke said. “With all of these things turning negative, Erdogan has an incentive to hide the data. . . He is convinced that high interest rates cause inflation, which makes it very difficult to fight inflation.

TurkStat has called the media reports that its data is being manipulated “baseless and fictitious” and claims its statistics meet international norms and standards.

But the public’s mistrust of its numbers runs deep. An Aksoy Research poll this month showed that more than half of respondents believed the economy contracted in the second quarter, when TurkStat recorded growth of 21.7%. Metropoll found that 82 percent of those polled did not believe the drop in inflation reported by TurkStat to 16.6 percent in May.

ENAG uses web scraping to check prices at online retailers throughout the day, tracking the same items and giving them the same weight as TurkStat. Lutfi Elvan, the country’s finance minister, urged the public to ignore ENAG’s findings, arguing that the group was seeking to “defame” TurkStat.

“They have no right to mislead people, and they will receive the appropriate response in court,” he said in a television interview earlier this year. He denied any political interference in TurkStat.

Ulusoy had initially hoped to collaborate with TurkStat, providing them with metrics they may not currently see. “It’s not just in Turkey, the static measure of inflation is wrong everywhere,” he said.

“People know that ENAG data reflects Turkey’s inflation, based on the money they have in their pockets and the prices on the street,” he said, adding “even if that’s a terrible number that no one wants. ”


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