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Shrinkflation: Turkey’s Real Sector Gets Real About Inflation #TurkeyEconomy

Shrinkflation: Turkey’s Real Sector Gets Real About Inflation <a class="hashtagger" href="https://sigmaturkey.com/tag/turkeyeconomy/">#TurkeyEconomy</a>

It’s no secret that Turkey’s economic woes are not limited to the dramatic fall in the Lira’s value against major currencies.

The depreciation of Turkey’s currency is more of a fallout from the country’s reckless borrowing throughout the last decade – it is also assuming a multiplier role in Turkey’s already crippling debt repayment schedule throughout the remainder of the current and the next year.

It is also very unfortunate that Turkey has to go through this crisis in the face of an obstinate administration who are still keeping the interest rates artificially low in the hopes of tightening the monstrous current deficit through buoyed exports. Their loose monetary policy is helping pump up the inflation which, despite official reports of 16-18%, is actually running at more than 80% according to international economists. Steve Hanke, who was a senior economist in the Reagan administration, has recently stated that Turkey’s real inflation is, in fact, running at 101% -the first time it has climbed above 100%


Although most economists agree the best path forward for Turkey is to set up a currency board, both President Erdogan and the Economy Minister Berat Albayrak are insisting that they will never stray away from a free market economy. A currency board sounds good on paper -no one really believes the Turkish Central Bank to have any trace of autonomy anyway, so why not set up a new authority to regulate the exchange rate and the money supply? The low Turkish Lira seems to have helped tighten the current deficit, bringing it to the lowest level it’s been in 10 months, and that was for June. It is sure to come down further when figures for the rest of the summer -when  theTurkish Lira accelerated its fall, are announced in the coming months.

The real sector in Turkey has borrowed $325B since 2002 to make $108B in foreign currency dominated assets. The net debt of the real sector, according to Turkish Central Bank stands at $217B. Though we may call this borrowing “reckless”, we have to admit that they must be feeling duped by the government, who, in 2013 was predicting the end of 2018 USD/TRY exchange rate to be 1.97 (vs. 6.4 in reality). They naturally thought hefty borrowing was a no-brainer with more-or-less stable exchange rates as well as appx. 0% interest rate on the US Dollar. Regardless, someone will have to pay these debts eventually, and it almost certainly will not be the companies that have accumulated this debt, who sell their products in Turkish Lira in the face of an exchange rate blowup. They will keep on restructuring their debt through the few remaining publicly owned banks. And what will happen when these banks finally risk defaulting when they, themselves, don’t get paid? Most likely an IMF loan which will deem the public responsible for the debts of the real sector.

With some stern economic measures destined to come into play very soon, whether it be through an IMF (or similar) bailout or through extreme domestic measures, the weight of inflation will be felt by the public very soon. Surprisingly, when you go to a supermarket these days, you will be surprised to notice the lack of significant price hikes in most household items. This could be attributed to sellers still thawing their old inventory during the slow months of summer, but if you look closely you will realize something sinister happening behind the scenes: Shrinkflation.

Shrinkflation is a term used to describe a situation where producers, rather than increasing their prices due to increasing costs, choose to secretly decrease the basis weight of their products without disclosing it. It is a sneaky practice that has been largely observed in the UK since the Brexit, and now we are seeing it fully implemented in Turkey. Shrinkflation can be best described as a disingenuous disguise against inflation, and there are obviously no laws against it. No company pledges to a standard weight and volume, and they are contractually free to play with them as they wish. Of course, no regular consumer ever bothers to check the size and the weight of a prepacked good they have been accustomed to buying for years. And since the changes come in incrementally, there is very little chance for an average consumer to find out about it.

Yıldız Holding, one of Turkey’s top conglomerates that has recently restructured its $6.5B outstanding debt, produces the very popular food brand Ulker and they have been one of the pluckiest companies to pursue this line of action, but do not assume they are alone. Traces of shrinkflation has been coming into focus on social media, and Turkish twitterers recently began posting their own experiences at the supermarkets and revealing the companies who are increasing their de Facto prices by slimming down the weight of their products by 20%-30% while keeping their selling rate the same. There is a long Twitter thread where people are contributing their own findings (https://twitter.com/aycimen/status/1018157312362545152?s=20): A jar of Nutella slimming down from 750gr to 630gr, Ulker’s chocolate bars shredding 20% of their old weight, boxes of pasta going down from 500gr to 400gr. Some other products, like potato chips, have taken a more stealth route, gradually losing weight from 150gr to 128 gr to 106gr while hiking up their prices minimally to look as if they have acted responsibly and with minimum damage to their consumers. One particularly absurd example is a cream cheese produced by Pinar, who have taken off 20gr of their original 200gr package. The product has long featured recipes on the back of their package, and the recipe for Tiramisu on it still calls for 200gr of cheese, although there is simply not that much cheese in the case anymore.

There are some other surreal examples where the packaging has been updated to reflect the new basis weight, but other information has remained the same. A bar of chocolate from Nestle that has been shrunk down to 70gr from 75gr still maintains that one bar has three servings of 25gr each. While some of the pictures post on the thread that compare the old and new packaging with some discernable shrinkage, there are others, such as potato chips and dried nuts who have not bothered to do that, and nowadays indifferently present less product in the same bag.

There is little surprise that the Turkish government did, and mostly will, stay mum on the topic since consumer price indices will not be reflecting this shifty practice, but one has to assume that it will have some negative impact on GDP.

About The Author

Ali Maturidi

Veteran in conflict zones.

More in Berat Albayrak, Central Bank of the Republic of Turkey, Currency board, Depreciation, Interest rate, Recep Tayyip Erdoğan, Shrinkflation, Steve Hanke, Turkey, TurkeyEconomy
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