High inflation increases instability

High inflation increases instability

Inflation numbers of the new year’s first month will be announced today.

There is curiosity about whether the rise in the consumer price index, which is now bordering 9 percent, will reach double digits.

Even if it does not reach 10 percent, many believe it will come close.

We will see by looking at the numbers today to what degree the price hikes introduced on New Year’s Eve were integrated in the month of January and to what degree bad weather conditions have affected food prices.

Even if the inflation rate does not see a double digit number, one has to say that estimates have intensified lately that the inflation ratio will reach a double digit number during this year, particularly in the first six months.

The Istanbul Chamber of Commerce (İTO) last week announced its price index for January, saying that retail prices increased 1.24 percent. 

It is known that there is a difference between ITO’s figures and the numbers that will be made public by the Turkish Statistics Institute (TÜİK). 

We know that the rise of consumer price index as of January 2015 was 1.1. That’s why if the yearly price rise, which was 8.8 at the end of December 2015, was to go beyond 2.3 percent in January, the outcome would be in the double digits.

It is difficult to reach that ratio but not impossible. The TÜFE price rise in February 2015 was 0.7 percent. Therefore, if there is a price rise above 3 percent in two months, there is the danger of seeing 10 percent next month.

If inflation sees a double digit number, that will further deteriorate the morale of the markets, which is already low. Following the 2008 crisis, while nearly all countries saw a decrease in inflation rates, only Turkey’s inflation continued to increase.

What is worse is that if inflation reaches double digits, despite low energy prices for the past two years, the consequence will be growing distrust of the economy both in domestic and foreign markets.

Unstable global environment

Regarding production, including that of China which has remained lower than expectations, and adding the danger of war, there is talk of fear again in the global markets of new crisis.

The global markets entered the new year in serious uncertainty. It is expected that the low interest rate hikes the U.S. Federal Reserve started will continue in March; estimates are also low on the number of interest rate hikes over the year. That means a delay on the normalization process in the aftermath of the global crisis.

Just as there are so many uncertainties in the global climate, the uncertainties pertaining to Turkey are even higher.

Perhaps Turkey is not at the same position as Russia and Mexico, whose economies are in dire straits due to low commodity prices. But while we should be in a better situation considering current circumstances, there is a serious reservation about Turkey.

The danger of a double digit inflation rate is a serious factor that would increase hesitations in capital. In these circumstances, the projection that the Turkish economy will face difficulty in attracting foreign capital that it needs will become a likelier case.

The mistakes of the government both in domestic and foreign policies, as well as the resistance of the Central Bank to take the necessary steps, can further deteriorate the economy.