Bringing Inflation Down Is Getting More Difficult.

I regret to say that my prediction that inflation figures would continue to remain high has become true. Attributing such rapid rise merely to conflicts abroad will not help us in any way.

While ever rising inflation and relatively low incomes are causing households to stock up on essential goods and manufacturers to stockpile raw materials and intermediate goods, price increases trigger more price increases in various goods and services.

A former politician in Turkey once said, “We always stopped the Treasury, which was constantly asking for an increase in sugar prices, so that we could prevent sugar factories, which were in the hands of the public at that time, from suffering financial losses. Because once the price of sugar was raised, the prices of all the goods or services that depended on it would rise too”. No doubt that it was a practical truth and still is. As fuel prices, utility and communication bills, and highway fees go up, the prices of products that contain or that are related to these goods or services inevitably go up either.

The same thing happens when the government raises taxes on these goods and services as well. We also see the government’s manoeuvres to maintain tax revenue. Taxes are lowered on some products and services, but prices are raised anyway. In other words, although it seems like the government is cutting taxes, it doesn’t make much difference since there are higher price hikes than the tax cut itself.

“Chain Effect on Inflation…”

As a result, both PPI and CPI continue to climb higher. Consumer Prices in Turkey are more than 50 percent higher; Producer Prices are more than 100 percent higher. As I always say, the CBRT must take a different approach to handle interest rates. We were talking about the increase in producer costs only months ago, now it is necessary to take into account the households who are trying to stockpile the end products. All these behaviours result in a rapid rise in prices while incomes decrease.

On e-commerce sites, it is possible to keep track of the fluctuations in the supply of consumer goods. Sometimes a basic cleaning or food item is not available on neither of those sites. Interestingly, it pops up a few days later, but at a higher price. As a result, consumers who see this buy more than they need, worrying that they would not find it again or they would have to buy it for a higher price”.

In short, the continuation of price increases and the fact that they are exceeding the tolerance limits causes Turkish economy to fall in a vicious circle. Both demand and pricing behaviours deteriorate, causing sellers and suppliers affected by panic and moral decay to rise prices even further.

I’m afraid the time has come to hike interest rates and then perhaps take even more radical.

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