Turkish inflation galloping
If Turkey had not been suffering from disastrous fires, public opinion would likely have been diverted by a video promotion for tourism in the country which has caused snickers among at least the most Westernized members of Turkish society by depicting a modernist fantasyland with young and obviously well-off people dancing to their heart’s content.
It is equally likely, however, that people would be focused on the country’s economic woes, highlighted by the latest surge in inflation that keeps eating at Turks’ purchasing power.
Last week, the latest data showed inflation at 18.95% in July. Reassurances by President Recep Tayyip Erdogan and his handpicked central banker, Sahap Kavcioglu, that inflation will ease considerably by the end of the year, are seen as unconvincing. And we are talking about the official figures, which themselves face considerable skepticism. Turkish Inflation Research Group (ENAG), a collective of leading academicians, said that the actual annual inflation rate is 36.7%. But even if this is not correct, economists, analysts and international credit rating agencies note that inflation developments make it impossible for Kavcioglu to lower interest rates Thursday, as his boss has clearly indicated. Of course, that’s the rational response, but in Turkey’s case one can never know: As soon as the inflation figure was announced, Erdogan put pressure on the central bank to lower rates, hoping to increase borrowing and maintain a high growth rate. “You can’t have inflation accelerating because we are going to raise interest rates,” Erdogan said, a phrase that sounds strange to economists. But Erdogan would not be deterred: “I suppose I’m sending a message somewhere,” he said.
Rating agencies have already warned that cutting the interest rate could trigger a downgrading of Turkey’s rating. But Erdogan has different priorities and they concern the 2023 election. Polls are not good for his AKP party. The weakening of the lira, the inflation rate and the rise in unemployment are making many more Turks poor: In 2020, Turkey was one of few countries whose economy did not contract, but the number of people living under the poverty threshold rose by 1.5 million.
