The inflation rates decreased slightly following the announcement of the CPI, which turned out to be at the highest level of the last 24 years. This latest data showed us that both the projections of the CBRT and those estimated in the MTP will fail. The PPI, on the other hand, interestingly declined by 20 points to c136%, Compared to the previous month.
I don’t know if anyone will attribute the fall of 1 point in the CPI and 20 points in the PPI to the decrease in interest rates. However, the base effect has a substantial role in this decline. Nevertheless, the increase in food prices continues and Turkey continues to get affected by the highest price increases among other developing countries. Obviously, the debate between the government and food retailers will grow even more in the upcoming days.
As inflation rises, the minimum wage rises too. This situation causes cost increases in other sectors as well. Mehmet Akif Eroğlu, President of Insurance and Private Pension Regulation and Supervision Agency (SEDDK), stated that costs and premiums will be re-considered in line with the minimum wage hike in 2023, adding that “if minimum wage goes up beyond our expectations, prices will be adjusted accordingly”.
According to the representatives of the sector, a reduction in taxes collected on insurance policies will increase the rate of insurance and thus the burden of the insured on the state’s shoulders will be mitigated.
“Watch Out for Side Effects…”
As prices increase, tax revenues increase accordingly. However, the government should implement a flexible tax policy in order not help people maintain their purchasing power. Turkey is going through difficult times, and the government is suffering under a great burden. It should not be ignored that taxes also create inflationary results, just like a domino effect. Even though taxes are known, in theory and practice, as a tool used to combat inflation, they in fact fuel price increases under the current conditions.
Under normal circumstances, rising interest rates and taxes curb the inflationary effects, however, under these abnormal circumstances, we see that both have serious negative impacts. Indeed, at this stage, the prescriptions offered by neoliberal are not helpful at all. Therefore, we should know that retrying methods that have been tried before but have not been successful will not be beneficial to anyone in this country.
When a specific drug cannot heal a disease due to external factors and conditions, we should avoid trying every drug that comes to mind in a desperate attempt to treat the patient. It would do more harm than good to use the medications that remained ineffective in curing the patient before in the hope of “they will work this time”. Let us remember that science is not about assertiveness or conservatism, but it’s an activity encompassing the study of the world through observation, rationality, and experiment.