Why do people mistrust inflation rates?

Dünya Executive - - COMMENTARY -

There are a number of reasons why people do not believe the announced inflation rates. First of all, CPI includes products that some households will never use, such as automobile­s and other items that can be considered luxuries. Of course, this calculatio­n method is correct because CPI measures the change in the total expenditur­e of all households.

But low-income citizens have to devote a significan­t portion of their spending to food, and when food prices rise too much, confidence in the announced rates is further lost. One of the most important reasons that makes the annual change in CPI doubtful is the fact that the rate used in the field and the rate that measures the lived experience

in terms of expenditur­es are very different.

TurkStat calculates two rates on an annual basis. The most commonly used method is to compare the price index in any month with the index in the same month of the previous year. This method is very sensitive to monthly price movements. Let’s remember the latest figures: The annual increase in CPI, which was 18.7 percent at the end of May, went down to 15.7 percent at the end of June, because the high June rate of last year was taken out of the calculatio­n and this year’s very low June was added instead.

When the calculatio­n is made only from June to June, we see such a change. However, there is another rate that is calculated by comparing the total expenditur­e in the last year with the total expenditur­e of the previous year. The annual increase is 15.7 percent according to June to June comparison, and is 19.9 percent according to annual average index comparison.

The situation in foodstuffs

The annual rate of change from month to month and the average rate of change do not give very different results in the total index. However, there are significan­t difference­s in the items of which price fluctuates in the months other than subject to price calculatio­n, such as food and non-alcoholic beverages, unprocesse­d food and fruit and vegetable. Especially fruit and vegetable prices can fluctuate largely due to both seasonal factors and supply problems.

The annual increase in fruit and vegetable prices, according to the month-to-month calculatio­n, ranged from 60 percent to 74 percent in the first four months of this year. This is very high. The citizen’s anguish at that time was not for nothing. Then what happened? Due to seasonal factors, fruit and vegetable prices began to decline and the annual increase fell to 48 percent in May, and 11 percent in June. So if someone says, “Fruit and vegetable prices have risen by only 11 percent in the last year, even below the general price increase,” he would not be lying. Well, if the citizens only consumed fruit and vegetables in June this year and in June last year, this rate is correct. What about consumptio­n in the remaining months?

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