Tax cuts have worked for the CPI, but what about the demand?

Inflation rate, which is expected to turn out to be negative, will be released soon after you read this report. After all, negative expectations do not actually seem too unearthly since Istanbul Chamber of Commerce Price Index has already turned out to be negative. The fact that tax cuts are to continue shows that inflation will remain at low levels until March.

As I have said, inflation rates in December are to be released soon but what we’ve seen so far tell us that government’s plan to accelerate tax cuts have yielded positive outcomes so far. It’s hard to tell in advance whether or not these tax cuts will bring any positive impact in terms of enlivening demand or improving goods and services manufacturing without provoking inflation.

As a matter of fact, government’s tax policies and foreign trade regime that have been implemented so far have been leading to severe effects of inflation. Where Turkey stands now vis-à-vis inflation after tax cuts clearly proves that I’ve made a spot-on analysis on the situation.

“Customs duties should be reduced too but how to defeat lobbying?”

I don’t think that Turkey will lower tariffs on imported goods as Trade Wars escalate. Accordingly, we can expect cost-push inflation to fall at a slower rate than CPI. Therefore, Turkey should better achieve permanent success in PPI by providing major support to intermediate good manufacturing. For instance, positive discrimination against intermediate goods producers among companies that have been provided with financing facilities before might be a good idea.

The capacities in some of the sectors fail to meet final good producers’ demands however these sectors are not capable of engaging in international competition because lobbying activities in Ankara, thus leaving final good producers to struggle with high costs. That’s why Turkey never manages to achieve permanent decrease in inflation.

From this point of view, I think I would not be wrong in saying that Turkey should increase the quality of foreign competition by encouraging the producers of final goods to involve in more exporting activities and should defeat the hegemony in domestic market by ensuring that more and more businesses produce intermediate goods. And I intend to focus more on this issue over the course of 2019.