Central banks and economists attach great importance to core inflation because they believe that it shows the underlying trend of inflation. Therefore, central banks, whose legal mandate is to ensure price stability, look at core inflation to track the underlying trend of inflation. So core inflation is the central bank’s inflation.
People’s inflation is completely different. They look directly at the inflation that affects their budgets the most. That is why core inflation is meaningless for a significant part of the population.
This fact does not mean that central banks are wrong to monitor core inflation indicators. Central banks are right to monitor core inflation. Because they look at the inflation they can control with monetary policy. There are over 400 goods and services in the consumer price basket that measures inflation. This basket gives us the headline inflation announced by TurkStat. However, there are prices in this basket that the Central Bank cannot influence through monetary policy. For example, the price of oil is determined externally and agricultural prices are partly affected by rain and sunshine. There are also prices set by the government, such as alcoholic beverages and tobacco.
Excluding energy and gold, whose prices are determined by international markets; food, which is affected by weather; alcoholic beverages and tobacco, which are determined by the government; and looking at the items that the CBRT can affect with its monetary policy gives a better idea of the underlying trend of inflation. As a matter of fact, while everyone follows the headline inflation announced by TurkStat, the Central Bank and some economists look at the C index, which fits this definition. However, the C index or other special comprehensive inflation indicators do not resonate with the public. Because the items excluded by these baskets continue to hurt the public. Moreover, there are differences even among various segments of society. Since not everyone has the same expenditure basket, the inflation felt by everyone is different. For example, the inflation felt by middle and low income groups is the increase in food prices, and there is a big problem here too.
On the bright side, on a monthly basis, the C index, or core inflation, has been declining for three months. In September it was 5.28 percent, in October it was 3.72 percent and in November it fell to 1.96 percent. This trend indicates that the underlying trend of inflation has partially lost momentum. This means that the tightening initiated by the Central Bank since May has started to show its effects. The decline in core inflation indicators is pleasing and promising. However, although the underlying trend in the Central Bank’s core inflation indicators has declined somewhat, they still remain high because monthly inflation of around 2 percent is high inflation. On an annual basis, annual inflation was 61.98 percent in November, while annual core inflation was 69.89 percent. This tells us that we still have a long way to go and that the fight against inflation must continue decisively without compromise.
