Saturday, July 10, 2010

Inflation is Coming!!!

One of the column and blog ideas I had posted more than a month ago was a quick and dirty way to measure inflation.

The idea is quite simple: I have been handling the food&beverages purchases of our family business for a month now and have this Excel sheet full of prices on thousands of items bought, with the quantity, pricing and supplier info. as well.

While I am not sure whether I will have the time to do a monthly food inflation at the end of July, as I hope to (the procedure is quite straightforward, but rather time-consuming), I am also informally following price rises. And the early signs from July don't look all that promising. Had I come up with a number, I am sure than it would have been higher than the expected figure for this month of the year, which I present, along with the headline figure, for your viewing pleasure:
Now, before you start dumping your Treasuries, there are important disclaimers you need to read: For one thing, since I don't have a time series, but merely one month of data, there might be some seasonality effect going on. For example, there is anecdotal evidence that suppliers serving to hotels pump up prices in the high-season months of July and August. If I had been doing this data collection for a couple of years, I could have easily corrected for that.

You might be also worried that my purchasing power will be stronger than the average consumer, so it will underestimate inflation. This wouldn't be a big problem as long as my purchasing power were constant through time, but as I explained in the previous paragraph, it might have actually decreased.

But if I am right, it seems I have sketched out, along with my earlier comment on Treasuries, a neat boond strategy for end-July and early-August:Wait for the CBT Inflation Report on July 27, where the Bank is expected to clarify its late hold-for-longer stance and even revise down its inflation forecasts. Sell on the ensuing rally and then wait for the worse-than-expected July print to buy again. Very simple, no complex hedging and the like here- let's wait and see what happens. Note also that the Treasury is facing TRY 20bn redemptions in August, but there are no auctions until the 10th of the month and it will all be over in a week.

BTW, there are also other interesting facts about this data: For one thing, everyone knows that food inflation is infamously volatile, not only in Turkey, but also in almost everywhere else, but I am surprised by the intra-monthly volatility. Obviously, since we are not making purchases of much else, I can not comment on whether, say, table tennis balls, are more volatile- but then again, for the average Turkish consumer, food matters much more than table tennis balls...

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