The Kapali Carsi

An interesting fact on Turkish inflation expectations

Inflation expectations in the Central Bank’s monthly survey of expectations surged on Friday.  On the one hand, this is obviously a negative development, especially since it came after the Bank’s emergency rate hike on Jan. 28. On the other hand, the rate hike could manage to stabilize expectations. But I would just like to make a small observation about the data:

I noticed that while end-year expectations are 7.92 percent, 12-month expectations are 7.21 percent. In other words, respondents are expecting a sharp fall in annual inflation in January 2015. It could be that they expect a base-year effect, as inflation came in much higher than expected last month. But then I decided to look at the Januarys of other years- and voila:

So survey respondents have expected inflation to fall every January for the last decade! But wait: Maybe, there is a seasonality effect; maybe, this January was an exception. So let’s look at the % change in annual inflation (I know I am taking the percentage of a percent, but 10.5-10 percent difference is not the same as 5-5.5 percent difference) in Januarys:

In fact, annual inflation actually rose in January 6 of the last 10 times. Hmmmm:) I had pointed out to inconsistencies in the expectations survey, such as current account deficit expectations incompatible with growth projections, before, but this is the most obvious one yet…

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