Turkish statistics agency denies claims inflation figures are warped

Turkish statistics agency denies claims inflation figures are warped
Turks have complained the official inflation data seem incongruous when compared to price changes seen in the shops.
By Akin Nazli in Belgrade January 8, 2019

The Turkish Statistical Institute (TUIK) has not allowed any warping to enter into its consumer price index (CPI) inflation calculations and the CPI data are calculated in accordance with EU standards, TUIK said on January 8 in a written statement.

TUIK announced on January 3 that the annual CPI inflation rate continued on a downward trend in December, falling to 20.3% y/y from 21.61% y/y in November.

However, the official food inflation figure was still as high as 25.11% y/y at end-2018 while annual inflation on alcoholic beverages and tobacco was determined to be only 2.39% by TUIK, and many Turks are encountering gaps between official figures and prices at supermarkets which are hard to fathom.

TUIK’s statement was a direct response to allegations outlined by Ahmet Takan, a columnist for daily Yeni Cag.

Hard discount chain prices ‘added to basket’
Citing an unnamed TUIK official, Takan wrote on January 5 in his column that prices at hard discount chains BIM and A101 were added to the official inflation basket and that the prices of certain products, such as perfume, were revised on December 26 after the second round of the statistician’s standard price collection procedure was already complete. As a result, the headline CPI figure declined by 2pp, the TUIK official reportedly said.

“I, using my accurate methods, calculate inflation to be 43%/yr, more than double the official rate. As I always say, 95% of the financial news is wrong or irrelevant,” Steve Hanke, an economist at Johns Hopkins University who is another vocal critic of TUIK’s inflation figures, said on January 5 in a tweet.

The Erdogan administration, facing an economy that appears to be slipping into a recession and spreading credit crunch and commercial debt worries, is under pressure to show it has economic matters under control ahead of the local elections scheduled for the end of March.

The work of Turkey’s official statisticians previously came under the microscope in September 2017 when Germany’s Commerzbank concluded that Turkey’s growth figures were “more than questionable” and could even have been “politically influenced”. In a report entitled “Turkey – Are you kidding me?”  Commerzbank’s emerging markets strategist Lutz Karpowitz raised scepticism over the then ongoing post-coup attempt economic rebound, questioning, for instance, the reliability of figures showing recoveries in tourism and foreign investment. The scathing conclusion of the report was that Commerzbank “would be very pleased for Turkey if the economic miracle really was happening”.

Inflation official dismissed
On October 6, Sozcu newspaper reported that Enver Tasti, a deputy director of TUIK who was responsible for the inflation data, was dismissed from his post on October 5, the same day the institute announced that Turkey’s annual inflation rate had leapt to 24.5%, significantly beating market expectations for around 21%.

“The good news in the awful Turkish inflation figure? Turkish statistics office credibility. A month ago locals and RenCap were questioning the reported 0.1% rise in August food prices. In September, food prices were up 6.4% MoM,” Charlie Robertson of RenCap remarked on October 5 in a tweet.

Tasti was replaced by Yinal Yagan of the Energy Ministry’s Directorate of General Mining, Sozcu also reported. Yagan is known to have been close to Berat Albayrak, Turkey’s treasury and finance minister and Turkish President Recep Tayyip Erdogan’s son-in-law, while Albayrak was energy minister, according to the daily.

TUIK confirmed on October 7 in a written statement that its deputy director in charge of inflation data was dismissed but it added that the move was an “administrative decision” and would have no impact on its inflation data releases which, it said, were calculated according to EU standards.

“Perceptions controlled by government”
“Statistics, indicators would be conflictive in an environment where perceptions are controlled by the government,” Korkut Boratav—an economy professor widely regarded as a doyen in his field—told daily Birgun on December 1, adding: “Bankruptcy protection applications rise while the FX is cheapening… Unemployment in the construction industry jumps while home sales are growing… Loan usage declines while lending rates are falling…”

Suspicion surrounding the reliability of TUIK’s data on critical figures such as GDP, CPI or unemployment has been mounting since December 2016 when the statistical institute announced that it had changed the way it calculated GDP, switching to the National Accounts System (SNA2008) and the European Accounting System (ESA-2010).

TUIK decided to use 2009, when the economy shrank after the 2008 global crisis, as the base year rather than 1998 in estimating the country’s national income.

As a result of this change, Turks got richer overnight. Growth recorded for 2015 was revised up to 6.1% from the previously announced 4%, while per capita income was updated to $11,014 from $9,257. GDP was not $720bn in 2015, but $861bn, announced TUIK, marking a 19.6% upward revision in national income.

“A more detailed classification of the financial sector has been introduced and improvement will likely be secured in estimating the non-observed economy, agricultural output and non-profit organizations. Although this sounds like a step taken in the right direction, the absence of detailed information—such as historical quarterly data, seasonal adjusted data and even detailed data regarding 3Q16—makes it very difficult to draw sound conclusions from the latest announcement,” J.P. Morgan said in a response to TUIK’s GDP data revisions.

Contradictions widely observed
Following the revision of the GDP figures, contradictions between GDP data and initial growth indicators such as industrial production and retail sales were widely observed, and the statistical institute subsequently revised up its industrial production and retail sales series.

In January 2017, the TUIK said it had cut the weighting of food and non-alcoholic beverages in the CPI inflation basket to 21.77% from 23.68% while it had also made several other basket reshuffles.

The statistics authority also increased the weighting of alcoholic beverages and tobacco in the inflation basket to 5.87% from 4.98%, while it pushed up the weighting of transportation prices to 16.31% from 14.31%. The weighting of clothing prices was cut to 7.33% from 7.43% and the weighting of housing was cut to 14.85% from 15.93%. The producer prices basket has also been subject to revisions.

Given that food prices had long been seen as one of the main drivers behind Turkey’s chronically high CPI inflation, bne IntelliNews warned that the TUIK’s controversial moves with the weighting of food and non-alcoholic beverages in its inflation basket would clearly lead to rising concerns over the reliability of its data.