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Is the Menemen Index an alternative inflation calculation?

Inflation remains a constant topic on Turkey's agenda. But have you ever considered that the expectation of rising inflation actually drives inflation even higher? The Menemen Index emerged precisely to draw attention to this distortion in pricing behavior.

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The Menemen Index is calculated simply to measure kitchen inflation. The index's creator, Assoc. Prof. Dr. Caner Özdurak, draws attention to the distortion in pricing behavior through an inflation calculation based on four food products found in every household.

Speaking to Medyascope, Özdurak stated that while the Menemen Index might be defined as perceived inflation or kitchen inflation, it does not claim to be the "most accurate measure of inflation" with a basket of only four items. According to Özdurak, who considers the monthly price changes of tomatoes, peppers, eggs, and onions in the index, the importance of it being a kitchen index lies in the fact that food products have a significant weight of 25 percent in Turkey's inflation measurements.

At this point, Özdurak also touched upon the debate of "Does menemen have onions or not?", pointing out that onions have high inflation and that their inclusion in the index is important. Considering that onion warehouses were raided to combat inflation, the importance of onions in the index can be better understood.

HOW ARE THE PRODUCTS IN THE MENEMEN INDEX DETERMINED?

Özdurak explained why they chose tomatoes, peppers, eggs, and onions as follows:

“We are actually measuring the inflation of products that enter everyone's kitchen. We do this through menemen to make it more memorable. It is fundamentally an index that enters everyone's kitchen, is on everyone's menu, and is included in everyone's budget regardless of income distribution.”

HOW IS THE MENEMEN INDEX CALCULATED?

Özdurak used to track the price changes of the goods in the index from the Turkish Statistical Institute's (TÜİK) item basket, but TÜİK has not been disclosing these prices since May 2022. Özdurak explained how they calculate the Menemen Index: "Since we cannot see the item basket, we are forced to do it based on wholesale market prices and egg prices from the İzmir Chamber of Commerce."

IS THE MENEMEN INDEX AN ALTERNATIVE INFLATION CALCULATION?

With the reliability of TÜİK being debated, economists also make evaluations by taking into account the monthly inflation data announced by the Inflation Research Group (ENAG) and the Istanbul Chamber of Commerce (İTO). Özdurak, however, underlined that the Menemen Index is not an alternative. Regarding whether the index has results parallel to other measurements, Özdurak said:

“While there are similar movements on an annual basis, it shows deviations seasonally and monthly; it does not show a perfect parallel, frankly. They have many more items and many more products. For example, in the coming days, we will see that the Menemen Index is higher during the period when fruits and vegetables are grown in greenhouses and prices go up. While we expect a base effect in inflation, the Menemen Index can jump in the opposite direction. It is entirely due to the supply-demand balance.”

HOW DID THE MENEMEN INDEX EMERGE?

Özdurak explained why the Menemen Index emerged through the distortion in pricing behavior. So, what is pricing behavior? Where inflation is high and the expectation that it will rise even further prevails, demand cannot be curtailed. Consumers, out of concern that the price of the product they intend to buy will rise further, create resources even if they cannot afford it, and carry out consumption by borrowing with loans or credit cards. Where there is a high inflation expectation, consumers tend to consume instead of saving, even when they do not need a good or service. Conversely, individuals and firms producing goods or services can constantly increase prices due to high inflation expectations, even if there is no increase in their costs.

IS THE CAUSE OF HIGH PRICES COST OR OPPORTUNISM?

After explaining the simple and basic argument of economic science, we can return to Özdurak on how the Menemen Index emerged:

“When we do not properly explain what perceived inflation, measured inflation, and official inflation are, it reflects on these inflation expectations. No matter how much you raise interest rates, no matter how much you try to do something with monetary policy, it reflects on pricing mechanisms, and when inflation expectations are distorted along with pricing mechanisms, demand-driven inflation does not come down.”

THE INDEX'S CONCERN IS NOT ALTERNATIVE MEASUREMENT, BUT DRAWING ATTENTION TO DISTORTION

Emphasizing that the Menemen Index has no concern about TÜİK announcing inflation as too low or too high, Özdurak continued his words as follows:

“Saying 'I see high prices on the street and in the market, TÜİK's inflation is low' is not a very accurate comparison method. Whatever TÜİK announces, the Menemen Index will likely be above it because food inflation is already higher than headline inflation. It is true, food is where people spend the majority of their money, and that is exactly why it needs to be shown that perceived inflation and headline inflation are different things.”

Boşuna Tıklama shared a tweet on its own social media account on the topic "The cost of making menemen has increased by 58.24% compared to last year." The post received many comments. Citizens made comments under the post stating that a single egg could be bought much cheaper in the past.

The tweet is as follows: