Are We Ready for High Inflation and Slowing Growth?

The constant increase in credit card, consumer loan and overdraft interest rates is no longer a matter of "restraining the demand", but rather "stifling it". I guess it’s the government’s way to tell producers "Sell if you can!” The government probably thinks that a fierce price competition will begin when demand is brought under control.

I was in China last week, and I realised that they are using a rather different method there. The government ensures that a large number of companies operate in the industries, therefore productivity increases through quality and technology competition, while dominant companies in each industry are prevented from making excessive profit. By becoming a shareholder in companies, the government gains effective control on the market. In Turkey, on the other hand, companies are prevented from making profit in order to reduce prices, which inevitably worsens inefficiency.

Recently, the Prime Minister of Canada and his team warned grocery chains that they will face consequences if they fail to stabilise their prices. It is strange that the government threatens the retailers when what they do is not  against the law If, on the other hand, making record profits is against the law, it is also strange that the government only extends threats rather than taking action to stop it. If there is unfair competition or something illegal is going on, the government should intervene. 

Effective controls are needed to eliminate the deterioration in pricing behaviour, especially in agricultural products. There is no end to profit, but some interventions are required so that everyone has access to essentials for living.  It is not possible achieve a stable result when governments fight inflation only by limiting people’s purchasing capabilities. Accordingly, we could say that the CBRT makes it more difficult for consumers to get a loan because they could not increase their policy rates as much as they wanted.

As far as I have been told, the Central Bank pledged that they will reduce inflation rapidly by the New Year. Frankly, I don't know how they will do it. It will not be easy to bring inflation down from over the next four months, including September. Policy rates might be hiked by another 10 points by the end of the year, but I do not think this alone will be enough.

Our economic growth will unavoidably slow down given the circumstances. However, if inflation and interest rates continue to remain at high levels despite slowing growth, I think the government will deal with it before the local elections. 

Prof. Alkin