Inflation is on the breakfast table - HATICE KARAHAN

Inflation is on the breakfast table

Every time the inflation rate is announced, there is an approach, which we got used to seeing in the headlines but also narrows the point of view of the public opinion; " Inflation Champion of the Month".

On Wednesday, it was declared after the announcement of August consumer inflation that the champion of this month was the "cherry". In this sense, every month we have a different champion ranging from green pepper to dried apricots. Today we will start out with the shallowness of this approach and take a look at the essential insurgents at the inflation front.

THE SHARE IN THE BASKET IS IMPORTANT

The effect of a factor is proportional, not just with its rate of change, but also with its share or magnitude. As is known, in calculating the Consumer Price Index (CPI), a basket consumed by the households is taken into account. As for the items in the basket, they are given certain weights. For example, the share of "food and nonalcoholic drinks" in the CPI basket is 24.45%. In other words, food possesses one fourth of an "average" household"s consumption.

So, the products" effects on inflation, are related with the rates of price changes and the shares in the basket. For example, while cacao"s share is 0.008 in every 100-unit expenditure, the share of "sewing yarn" is designated as 0.003. Even if the price changes in these low-weighted products are high, the shocks they create in our budgets are unable to become serious. On the other hand the effect of a similar increase on the "cell phone call price" that takes a 2.53 unit in the basket, is felt more strongly.

CHAMPION OF THE MONTH IS NOT CHERRY, BUT RATHER TOMATO

Within this scope, let"s go back to the "cherry". In August, CPI rose by 0.09% compared to the previous month. And in this period, we experienced a 37.7% price rise in cherries. Though, because of the cherry"s share in the basket is only 0.055%, this increase is unable to become a prominent effect.

When we plunge into the numbers, we understand that the biggest "contribution" to the monthly inflation was provided by the tomato, which takes the most place in the basket. In August, the tomato is being followed consecutively by his friends at the morning table; the cucumber, the egg and white cheese. After them comes the meat. In short, unprocessed food products are the leading actors for the monthly inflation.

Meanwhile, the decline in the apparels, because of the sales season and the let-up in the transportation prices, affected the CPI in a negative way, but with the strong effect of the food, the monthly inflation has once again been positive.

THE UNLUCKY YEAR OF THE FOOD

These are the points that become prominent in the monthly inflation. Now, let us look at the yearly inflation, from a wider view. By increasing 9.54% yearly, CPI has demoralized everyone. This year, with the contributions of the increasing exchange rates, inflation is on the rise and the biggest and well-known chief culprit is the "food prices" again…

Usually, domestic food prices move parallel to international price changes. Though, in 2014 this trend has differentiated. Behind this, there are some supply problems related to the drought and the frost. In this sense, we have experienced unexpected price rises in the products of wheat, rice and legumes.

When we look at the August data, we observe that the negative outlook of the food still exists. This is because the biggest contribution to the 9.54% consumer inflation rate has been through "food and non-alcohol drinks" with 3.5 points. This contribution was 3.1% in July. Consequently, the inflationary effect of food has increased by 0.4 points.

NOT ONLY IN THE KITCHEN, WE ALSO EAT OUTSIDE

I would like to take your attention to the fact that the role of the food does not end here. This is because food indirectly, has a dominant place in the "restaurants and hotels" group that collects the highest raise in August. Thus, the following finding tells usa lot ; food prices under the two groups have caused the 4.5points of the 9.54% inflation rate!

Then, which products support this resistance in the current years" inflation? When we analyze the data, the guilty are becoming apparent. "Bread" being in the first place, red meat, tomato, rice and cheese are prominent this year. There are also some parallel products that are attention grabbing: sandwich döner, burgers and kebabs… This is also a valid result for the monthly inflation.

By the way, another factor that becomes prominent in the yearly inflation"s August performance is "Transportation". In the related period, the 9.45% increase in the transportation prices has made a 1.5 point of contribution towards inflation. With 0.9 and 0.7 points of contributions, housing and household goods follow the transportation. We need to examine the dynamics in these groups more in detail, but our space is limited. Let us handle those, when the data trafficslows down a bit. And let us leave behind this busy week which we started with good news, now with a little discomfort.

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