How to fight back against inflation – Part

After an overall evaluation of the recently released ‘collaborative fight against inflation’ program, I have come to the conclusion that it was focused merely on one thing: consumer inflation. With exchange rate pass-through effect on the general price level and its consequent bubble, the program seems like it was intended rather for the opportunists that use every situation to get power or advantage.

Let’s take another look at the main headings of the program:

  • Instant 10% discount
  • A discount interest rate of 10%
  • Rise in gas and electricity bills to take effect at a later date
  • Government control of shopping districts and streets
  • Government and KOSGEB (Small and Medium Enterprises Development Organization) support for export
  • VAT refunds

As you can see, some of those measures are somehow designed to provide support to “producers and exporters” instead of fighting back against inflation, which makes me think that whether these measures will actually bring a gradual fall in inflation rates. The answer is simple: No, they will not.

“You can’t blame everything on opportunism…”

There is severe cost-push inflation in Turkey. Honestly, we cannot blame the fact that PPI is currently remaining above 45% on opportunistic tendencies. Turkey is experiencing severe cost-push inflation, which, along with unproductivity, may soon result in stagflation. Unfortunately, the program does not set forth any measure that slightly suggests public sector must do its share too, however, banks and private sector are expected or rather required to offer price discounts. I think Government has the luxury of avoiding a further round of energy price rises until the end of the year given the recent rise in energy bills.

Price controls, on the other hand, are absolutely vital. The program seems to be covering this part pretty well. However, we may face the risk of putting the inflation monster back to sleep and then waking it up starving.

Accordingly, Government should take measures to help reduce cost pressure on producers. Otherwise, PPI, which has already exceeded 45%, may soon hit triple digits. I think more radical actions will be required to fight back against inflation. These actions, however, must involve Government making sacrifices this time.

For the moment, the public sector chooses to ignore this fact. But, they shall see it very soon