Prof. Dr. Veysel Ulusoy: Inflation Denial and the Politics of Data in Türkiye

By Prof. Dr. Veysel Ulusoy

Inflation denial is rarely just about inflation.

When states begin to manipulate, soften or politically frame economic data, the issue quickly moves beyond methodology. It becomes a matter of credibility, expectations and, eventually, systemic risk.

Greece offered one of the clearest examples of this dynamic in the 2000s. For years, the Greek statistical system presented budget deficits, debt-to-GDP ratios and, to some extent, growth data in a more favorable light than reality justified. After George Papandreou came to power in 2009, his government disclosed that the budget deficit announced by the previous administration at around 6 percent was in fact more than twice that level. Later revisions pushed the gap even further.

This was not a routine statistical correction. It was an admission that a state had been reporting flawed macroeconomic data for years.

The consequences went far beyond Athens. Greece was part of the euro area, and therefore part of a system built on the assumption that national data reported to the European Union's statistical machinery could be trusted. Once that assumption collapsed, the problem was no longer limited to one country's bookkeeping. A broader confidence crisis emerged. Questions followed about whether other member states were also misreporting core economic indicators.

That collapse of trust carried immediate financial consequences. As the pace of debt accumulation became clearer, so did the scale of future fiscal burdens. Default risk entered the picture more visibly. Country risk premia rose. Debt rollover became more expensive. A self-reinforcing crisis took shape.

At that point, the familiar dynamics of an emerging-market-style shock began to appear inside Europe. Investors started to dump Greek bonds. Borrowing costs climbed. Signals of a sudden stop became harder to ignore. Financial markets asked whether Greece was an isolated case or part of a wider pattern, and scrutiny quickly spread to Portugal, Spain and Italy. The foundations of the European sovereign debt crisis were laid in that period. Unemployment surged, output contracted and harsh austerity followed.

The crisis did not erupt overnight. It was not simply a story of high deficits or overstated national income figures. The deeper problem was that the weakness had been concealed for too long, and the delay in acknowledging it obstructed any timely response. What emerged was a full credibility crisis in which rational expectations deteriorated and data reliability itself became a state variable in the economy.

A similar pattern could be seen in Argentina between 2007 and 2015. During those years, the national statistics agency, INDEC, systematically understated inflation. Official figures remained in the 8 to 10 percent range even as actual inflation was approaching 40 percent.

In other words, inflation was no longer being measured. It was being managed.

The process began with interventions in the inflation basket. Cheaper goods were given greater weight. Prices that were rising rapidly were excluded or diluted. State-controlled or administratively influenced prices were used in ways that softened the picture, while actual market prices were pushed into the background.

The methodology was also changed without adequate transparency.

As a result, the official price index ceased to function as a neutral statistical tool and became a political variable.

That shift distorted wage bargaining and weakened the meaning of contracts. It produced parallel layers of economic reality. The official economy on paper and the real economy in the market increasingly diverged. Multiple and unstable equilibria emerged.

Interest rates were set against a faulty picture. Wages were suppressed. In sectors outside direct state control, especially rents, price explosions became harder to contain. Posted prices lost meaning. Firms increasingly relied on hidden or indirect price increases.

The International Monetary Fund formally censured Argentina over the data controversy. More broadly, the episode pushed economists to revisit a basic question: are variables such as inflation and national income objective economic indicators, or can they become politically determined outputs under certain institutional conditions?

The experiences of Greece and Argentina show clearly that when the credibility of official data breaks down, economic disruption eventually follows. Denied inflation distorts pricing behavior. Hidden fiscal imbalances can suddenly become debt crises. In a country like Türkiye, where economic distress has deepened and persisted since 2018, the roots of the ongoing crisis must also be examined in this broader context.

***This article by Prof. Dr. Veysel Ulusoy was originally published in Turkish and is republished in English on Bosphorus News with the author’s permission.