Tuesday, July 6, 2010

Is the official inflation rate reliable?

I dont believe in the Turkish Statistical Institute and that the prices go down. if i go to the market for buyin my needs then i see that the prices are not stabil and they are incresing continiuos. So the question is, shall i belive in reality that i see with my own eyes or in unrealistic report of the Turkish Statistical Institute? please answer this!
By the way, as a principle, I do not edit reader comments for spelling or grammar. The reason is that I would like to stick to the original text and I have no desire to act as if my English were better than the readers, as they may be making such errors simply because they are writing too fast. I am already very grateful for reader comments, so I wouldn't even dare to ask them to check their spelling and grammar before they send in their comments.

Anyway, the reader is raising a very important point: Her consumption basket is different than TURKSTAT's, so she may be seeing a different inflation rate. But you can also easily argue that official inflation statistics overshoot real inflation to the extent that the consumption basket is not updated regularly: For example, new products mean that pocket inflation would be lower than official inflation. Similarly, an outdated consumption basket would not take into consideration substitution effects (i.e. the fact that you'd choose your consumption basket in favor of cheaper products).

And suppose that the reader is right, TURKSTAT inflation is indeed higher than official inflation. Obviously, official inflation would be understating real inflation. But as long as TURKSTAT makes the same measurement error each month, this wouldn't make much of a difference; for example, although you'd know that prices did not fall last month, you'd at least know that the rate of price increases is falling. That's an important piece of information by itself.

4 comments:

Anonymous said...

Tuik doesnt say that the prices are going down.it is saying that the inflation rate is falling down.that means the prices are increasing at a slower rate than before which is in fact called"disinflation" which is a slow down in the rate of increase of general price level.A decrease in the general price level is called "deflation" which is not desired.
maybe instead of saying "enflasyon %10 dan %8 e dustu"they should say that fiyatlardaki artis hizi %10 dan % 8 e dustu.it might work better.

Emre Deliveli said...

@ Anonymous: Your explanation is right for yoy inflation, which declined from 9.10% in May to 8.37% in June. BUT, monthly inflation was -0.56%, so prices did increase decrease in June. And that's what the reader is criticizing, as she observes that prices did not decrease in June...

Anonymous said...

my apologies....i didnt really look at the monthly inflation figure in june.the figures i presented were just for an example(yoy).i didnt know there was a negative inflation rate in june.
again my apologies to the reader"sismasivi".

Emre Deliveli said...

Don't worry, I am sure SISMAVISI will not mind:) But thnx for the comments...