No short term recipe to curb inflation

No short term recipe to curb inflation

Once again, high inflation has definitely become one of the biggest challenges the Turkish economy is facing. Some parts of the economic administration have seemed to overemphasize boosting the economic growth. However, this trend has triggered some structural weaknesses in the Turkish economy, including its current account deficit and has wooed some former demons, such as high inflation.

Last week, a top economic representative from the main opposition Republican People’s Party (CHP) said the largest complaints that have come from Turkish citizens have been mainly about economic problems, namely a significant rise in the cost of living and unemployment rate.

Even the recent poll by the ruling Justice and Development Party’s (AKP) has confirmed this, as the public opinion poll had indicated economy as the most important problem in the country, while it had previously indicated terrorism.

Although there has been an increase in complaints about the economy, problems such as unemployment and the high cost of living have mostly been highlighted by participants, according to various reports that were published last December.

Turkey’s consumer prices, excluding volatile items, such as food and energy, have been measured to be at their highest level in over 13 years, according to data from the Turkish Statistics Institute (TÜİK) on Jan. 3.

The headline inflation rate was announced at 11.92 percent in December 2017. Again in double-digits, even if it was regressing from a 14-year peak at 12.98 percent in November 2017. Price increases in the food and transportation sectors have played a key role in consumer price hikes, according to official data.

What may be worse was that core prices rose 12.3 percent in December 2017, the highest since January 2004.

Core inflation does not include volatile items, like energy or food, so it is becoming tougher and tougher to fight against it.

Besides, despite a slight rise in the Turkish Lira’s value against the U.S. dollar, the core inflation has continued to rise. This has shown that the loss in the lira’s value has started to spill over other sectors and that there has been deterioration in pricing behaviors, as the producer price index also hit 18 percent.

This is really dangerous for the Turkish economy, which has seen skyrocketing inflation rates in the past.

In this climate, any interest rate move by the Central Bank may not offer a big help, unless a really big hike is made. The efficiency of such a move, however, will be highly questionable in the light of the structural problems behind the rising inflation rate and after a lack of moves by the bank in the recent past.

Nevertheless, a considerable rate hike would somehow stabilize the volatile lira, but it would slow growth in the end.

In this dismal paradox, the economic administration must take the required steps to reverse the high inflation trend.

Over the last year, a number of measures to curb surging food prices were announced by the Food Committee. Yet, these steps have ended up with weak outcomes. They might have led to some solid results if local producers had been supported instead of focusing on increasing food imports.

Robust steps are needed urgently to curb the high inflation, at least for the long-term good.

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