2023 starts with decreasing inflation..


The first CPI data of 2023 would shed light on the whole of year of 2022. I had previously said that we would see inflation decline by at least 10 basis points. Let me explain why:


Due to the base effect, the CPI figure of 13.58% in last December would drop to a monthly figure estimated between 1.5% and 3.0%. And that’s what happened indeed. As a matter of fact, the monthly number turned out to be even lower than expected. I expect this decrease to continue until the CPI announcement in May. I can also say that the reductions in energy prices will have a positive effect on inflation as well.


I think the inflation rate will fall further by 7-10 points next month. Overall, we may see a drop of slightly more than 25 points by May 3, of course, provided that the CPI remains around 2% every month. However, the trend will not continue like this all the time becausewe do not know exactly how the second half of the year will be.


“Government Seeks to Achieve Equilibrium by Suffocating the Market…”

With the recent macroprudential measures aimed at increase the financial system’s resilience, the government tries to keep not only the policy rate but also the market rates under pressure. In other words, all methods, including direct intervention, are being used so that neither foreign exchange rates nor interest rates remain below the market conditions. We observe that the government has been satisfied with the results of its efforts so far and will continue its practices for a longer period of time.


This reminds me of the warnings I shared with you in 2017. In various articles, I explained in detail the methods of injecting capital into the public banks, and that the cost of preventing inflationary pressures before they arise by providing subsidies to specific industries in order to help them pay a part of the production costs of essential goods and services would be less costly than doing nothing or than a late intervention. Today, unfortunately, Turkey is paying the price for the government’s hesitations to take an action in 2017.


Most of the measures that are being implemented today has been discussed 5 years ago before the market disruptions.Sadly, being late in taking the right action in the right time has a heavy price. These ameliorations should have been introduced when government deficit was at a more reasonable level. Of course, they have been put into effect just before the elections for purely political purposes, but the sad thing is now we are faced with an inflation rate above 60% whereas we could have gone though only a 30% inflation.


I hope that from now on, our leaders will do the right thing in good days before it is too late.