Why is the calculated and real-feel inflation different?

People have never found the inflation that is released by the government credible. However, credibility has never been as low as it is now. But why?

There are many reasons. The frequent management change at the Turkish Statistical Institute (TurkStat), which calculates inflation, is the leading one. In theory, TurkStat is an institution that measures developments and realizations.

It’s that simple in theory, but it isn’t in reality!

How are these management changes interpreted by citizens, given that inflation is now the most concerning data released by Turkstat for them?

“Apparently managers who were dismissed stated high inflation [as the reason why people were dismissed]. That’s why someone was appointed to intervene.”

But this isn’t the only reason.

One of the main reasons for our interpretations that real inflation is higher is that we don’t know the structure of price indices and calculations.

With the Consumer Price Index (CPI), TurkStat tries to measure the price change in total expenditures of Turkey but not of a certain segment such as paid employees, retirees, and tradespeople.

That’s why it’s normal that the released data isn’t found credible, as everyone has their own inflation. Incomes are the same, but expenditures are very different. That’s why inflation is different.

TurkStat determines where and how much households spend on average with a survey conducted every year. The weight of groups and items are determined in the CPI in line with this survey. Goods and services which are consumed most are included in the CPI. In line with the weights implemented in 2022, 25.32% of the CPI consists of expenditures on food and non-alcoholic beverages, 16.80% on transportation expenditures, and 14.12% on housing expenditures.

However, there are some weights that are contrary to the facts of life. For instance, the weight of property rental in the CPI is 4.44%. It may be true in terms of the average of households in Turkey. But can the money paid by a middle-income family for rent really be 4.44% of their income? Or, the weight of food in the CPI is 25% but this rate is far higher for a low-income family. The amount to be allocated towards food will be higher when income decreases. Since food items have become significantly costlier, people won’t find the official inflation credible.

There are also products included in the scope of the CPI that aren’t consumed by the poor at all. But these should be included as expenditure of the whole of Turkey is calculated by the index.

What needs to be done is to form a new index. Although there are sub-indices within the scope of the CPI, a new index would prevent confusion about inflation.

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