Inflation Must Be Tamed with patience !
Governments around the world say that the fight against inflation is about to come to an end and rate cuts will begin again. But what people are actually afraid of is economic slowdown or recession, and the fact that current rate hikes will not mean anything due to price increases caused by logistics costs.
Inflation does bring about not only economic but also social and political problems. In addition to its distorting effect on total GDP distributed amongst the population, it also leads to morally questionable actions or decisions. However, unemployment and decline in economic activities can have much worse impacts than those of inflation.
In countries with low or even negative population growth, growing unemployment rate along with the fight against inflation could be tolerable, however in countries like Türkiye, it often produces two different results: a high level of informal employment, the social issue of migrant workers and human capital flight.
Government’s measures to reduce demand and to slow down economic activity in order to ease the inflation problem is making life more and more difficult for low income earners, and they definitely not ensure the pricing behaviour desired by decision-makers. As it becomes increasingly difficult for people to meet their basic needs, the prices of essential goods and services are going up every day. In short, inflation and high cost of living impact Türkiye’s citizens greatly.
In many countries, the high cost of living continues even after the fight against inflation is won. Because the balance between earnings and prices cannot be maintained. This is the reality behind the high cost of living in Japan, Belgium and the Nordic countries despite the high GNI per capita. In many countries, young people save up money for university and many give up before they can achieve their dream. A university degree is necessary to get a higher wage, but to do that, you also need money. Some people ask me “how do you know if that’s true?” I know because I talk to people, to regular people on the streets in Türkiye or in any other country. I compare the country statistics with the answers to the questions I asked to people of the same country at least five different times. You don’t necessarily need a scientific model to see the truth. But if you want to ignore the truth deliberately, that’s a whole different question.
After you have fought inflation and beat it once and for all, you need to stay vigilant. As you know, Türkiye had removed six digits from its currency, but one came back and the second could return any time now. This is what happens when a government does not take the fight against inflation seriously. The big mistake is using all the wrong methods with countless side effects when inflation strikes back, which makes it even more difficult to create welfare. Accordingly, salaries, wages and allowances are increased. And these hikes make inflation stickier.
For this reason, it is imperative to act quickly and bring inflation under control as urgently as possible. Inflation rate in Türkiye was last single digit in 2017. This means that a seven-year rehabilitation period is required. Due to the government’s obsession about the three-year programmes, the disinflation efforts that were once started with much drive and hope are thrown aside when the possibility of failure becomes clear. In the meantime, those in power try to withstand public pressure and they pretend like they are fighting against inflation in order to avoid being accused of “lack of seriousness” when their long-term struggle takes actually too long!
To do this, all institutions, including local governments, must act seriously and design their policies correctly. Implementing a process starting from local governments would be the best option. Only this way, inflation can be tamed and people can finally breathe a sigh of relief.