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Ankara struggles to control inflation narrative as Turks’ mistrust mounts

Newsletter: Europe Express

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 twice as fast as the government claimed.

The backlash from Ankara was swift. In February the state-run Turkish Statistical Institute (TurkStat) filed a criminal complaint against the independent Inflation Research Group (ENAG), which uses high-frequency data collection to track online prices and has concluded that annual consumer price inflation is now about 40 per cent, compared with TurkStat’s figure of 19.5 per cent.

“Our aim wasn’t a move against TurkStat or to create an alternative inflation rate,” said Veysel Ulusoy, who teaches economics at Yeditepe University and leads a dozen or so volunteers, including PhD students, mathematicians and accountants, in the independent inflation project. “But polarisation is everywhere in Turkey, even in the statistics.”

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

ENAG’s legal troubles show how touchy a subject numbers are in Turkey. The government registered the fastest economic growth in more than two decades in the second quarter this year, but polls show many Turks feel left out of the boom as inflation and unemployment remain in double digits, with a majority losing faith in official figures. The cost of living, joblessness and the economy topped respondents’ list of concerns in recent surveys.

This is driving down support for President Recep Tayyip Erdogan’s Justice and Development party (AKP), now at historic lows two years before the next election. The Turkiye Raporu polling agency’s survey this month found its lowest rate of support for the ruling party yet, at 29.9 per cent, and its director Can Selcuki said unhappiness with the economy was the main factor in the slump.

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

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

Kavcioglu has so far resisted pressure from the president to lower the main interest rate of 19 per cent as consumer prices continue to climb. After saying this month the bank would now look at the lower core inflation figure when it comes to setting rates, he may yield at Thursday’s meeting.

Turkish president Recep Tayyip Erdogan has blamed ‘opportunists’ for rising costs © Reuters

While economies across the world are grappling with inflation amid large-scale stimulus spending during the Covid-19 pandemic, surging consumer demand and supply constraints, in Turkey Erdogan blames “opportunists” for rising costs. “By bringing inflation under control as soon as possible, we will prevent the exorbitant price rises on the shelf,” he said last week.

In an effort to hunt down alleged price-gougers, government inspectors were dispatched to supermarkets last week, according to local media. “This is fighting the symptoms because the government doesn’t want to take the bitter medicine,” said Atilla Yesilada, an analyst at Istanbul-based consultancy Global Source Partners. Reining in inflation “requires far higher interest rates and cuts in budget spending. And rent and food inflation are due to structural problems that require more time than the AKP has to win the next election.”

Other metrics also show faster-than-reported inflation. Steve Hanke, an economics professor at Johns Hopkins University, uses purchasing power parity pegged to the dollar exchange rate, and found that consumer prices rose at double TurkStat’s rate in June.

“Erdogan like all politicians wants a low inflation rate, GDP growth to look high, interest rates to be pushed down,” Hanke said. “With all of those things going negative, Erdogan is incentivised to hide the data . . . He is convinced that high interest rates cause inflation, and that makes it very hard to fight inflation.”

TurkStat has called media reports that its data is manipulated “baseless and fictitious” and says its statistics comply with international norms and standards.

But public distrust in its numbers runs deep. An Aksoy Research poll this month showed more than half of participants believed the economy shrank during the second quarter, when TurkStat clocked growth of 21.7 per cent. Metropoll found that 82 per cent of respondents did not believe TurkStat’s reported drop in inflation to 16.6 per cent in May.

ENAG uses web scraping to check prices at online retailers throughout each day, tracking the same items and giving them the same weighting as TurkStat. Lutfi Elvan, the country’s finance minister, has urged the public to ignore ENAG’s findings, arguing the group sought 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 meddling at TurkStat.

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

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


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