First, let us briefly report the inflation rates. In November, consumer prices rose by 3.28 percent. The eleven-month increase was 60.09 percent and the annual increase was 61.98 percent.
If the December increase comes in around 3 percent, the year will be closed in line with the 65 percent forecast.
The November increase would normally have been much higher, but the natural gas tariff prevented this.
TurkStat started a strange practice in May by throwing the ball to Eurostat regarding natural gas in the CPI calculation.
All natural gas consumption of residences in May was subsidized by the Ministry of Energy budget. Starting from June until May 2024, 25 cubic meters per month will be covered by the Ministry of Energy budget as well.
As a result, no money was paid for natural gas for residential buildings in May, regardless of consumption. There would not have been much consumption in May anyway.
The critical decision that turned the inflation calculation into a soup was taken at that time. On May 29, 2023, TurkStat announced that zero prices were introduced for natural gas.
Did the price of natural gas drop from April to May, no. But what was implicitly said was this:
“You paid for natural gas in April, you will not pay at all in May, so I will consider the price of natural gas as zero in May.”
At first glance, it may not seem wrong.
So let’s answer this question:
When a household does not buy a car that month, when it does not replace its refrigerator, when it does not renew its furniture, let’s go with simpler items, when a woman does not buy the skirt she sees in the shop window because she cannot afford it or does not like the color, when parents have to postpone buying new shoes for their children for a month, are these products excluded from the inflation calculation?
I can almost hear the objection:
“But natural gas is a consumption item that concerns everyone.”
Why? There are many places in Turkey where natural gas does not reach. They use bottled gas, wood or other fuels instead of natural gas. So were bottled gas and other fuels distributed free of charge in May, and if so, was there a zero price for them as well? Of course not.
In addition, coal and other aid has been provided to households in Turkey for years. For example, was the zero price method applied in the CPI for the price of coal when coal was provided?
In other words, the zero price method for natural gas, which was preferred by saying “But Eurostat applies this method”, was wrong.
Price is fixed but has an impact on inflation
The price of natural gas seems to have increased by 478.89 percent in November. Please note, there is no such increase, it only appears to have increased. In fact, natural gas is not even among the products that saw the highest increase in the CPI in November. Because this increase is virtual.
In real life, the price of natural gas is different from the price that TurkStat takes into account in the CPI.
The fallacy of the zero price implementation should be much better understood now. A button was buttoned incorrectly in May… In May, the price of natural gas was taken into account as zero; in the following summer months, consumption was again zero as consumption up to 25 cubic meters was free. The zero price practice was limited to May, but because of those 25 cubic meters, this practice was de facto continuing.
The natural gas index, which was 1547.12 in April, dropped to 0.03 in May, almost to zero. It was more or less like this until September. The index was 186.14 in October and 1066.13 in November. (Since this index includes natural gas, but also city gas, the increase in May is not zero, and the increase in November is different from the 478.89 percent increase in natural gas prices).
In my article in this column on November 29, I wrote that the weight of natural gas in October dropped to 0.32 percent. I made a mistake in this calculation, and it turns out that the weight dropped even lower. The weight in October was 0.21 percent, not 0.32 percent. Accordingly, the 478.89 percent hike in natural gas, which “seems to have come” in November, affected the CPI by 1.21 points. The effect of the main expenditure group of housing, which includes natural gas, on the November increase was 1.44 points.
Natural gas, which is not subject to a hike, pushes inflation up by 1.21 points. But this rate would have been much higher without the zero price method.
And let’s not forget that the inflation rate in the previous months was lower than it should have been thanks to the zero price scheme.
CPI measures price change
Whether it is calculated correctly or not, whether it reflects reality or not, is a matter of debate. But at its core, the CPI measures price change, not the price level.
CPI measures price change, not the standard of living.
CPI stands for “consumer price index”, which means that CPI is not a subsistence index that measures the level of expenditures of households.
But such zero-price preferences transform the CPI from a measure of price change into an index that measures the standard of living, albeit in a limited sense.
Impact on December data expected between 1.1-1.4 percentage points
Both the natural gas price of 3.93 liras for November and the natural gas index indicate a 35 percent decrease compared to last December.
Both this price and this rate are virtual!
Neither natural gas is TRY 3.93, nor is there a 35 percent decrease compared to the beginning of the year. Just like in November, natural gas was not actually increased by 478.89 percent, but “appeared” to have been increased.
Almost half of November was mild. With December, winter is starting to make itself felt and natural gas consumption will increase. Usage in December usually increases by 100 percent compared to November.