What does “inflation turned out to be lower than expected” supposed to mean?

Several months ago, I told you about a certain threat in my daily reports. The threat was neither about the exchange rates nor interest rates… The most important danger we may face is “getting used to something”. Apparently, according to some world news agencies, Turkey is indeed going down that road.

If we consider above 30% producer inflation and nearly 20% consumer price inflation “lower than expected”, it can only mean one thing: we lack relativity. In other words, we do not possess any longer a sense of good perception with regard to economic parameters, which means we are facing the risk of getting easily used to high inflation levels and high interest rates levels, making those things a part of our daily lives.

In short, stressful days may be ahead for the next 2 months considering potentially more chronic conditions.

“Cutting to the chase again…”

The truth is if Banks are to experience trouble with providing syndicated loans or creating a supply of long-term finance, they may not be able to roll over specific loans. On the other hand, if they keep putting pressure on companies that are having repayment difficulties would lead to a decline in goods and services production as well as economic growth. As a matter of fact, the process has already begun. To stop it from spreading to the whole economy, we should have a solid plan. I used to call it “Plan B”. But now, that’s water under the bridge. Risks became reality. So, the route map I have been talking about for quite some time now has turned into a “main plan”.

In case a critical risk becomes reality, top executives may have to choose between two decisions.

  • They may choose to dress their wounds, hold their chin up and get rid of the problem once and for all (obviously in a future period of time): Doing so, they may receive some reaction they will not however become the target of criticism. On the other hand, they may run the risk of ignoring useful recommendations if they do not really want to listen to them. They may choose to delay the implementation of a permanent solution once they start to notice temporary improvements. They eventually decide to maintain their positions, in the meantime letting fluctuations go on because of unsolved problems.
  • They instantly recognise the presence of problems without worrying about what internal and external stakeholders would think. Thus, the problem becomes anonymous. In such cases, executives will have to be open to all criticism as well as solution suggestions. The method usually works and the problem is solved. In result, however, executives/company may lose popularity. Those who worked with them for finding the most suitable solution may seek the current positions.

When we thoroughly examine the two options I mentioned above, we can easily notice that both decisions involve risks in terms of solution of the problem and the survival of executives.

The recently emerged problem is being experienced by Turkey as a whole country. I am talking about a problem whose root causes can be identified as 40-50 year old decisions, social psychology, desire for rapid growth and strength refill after July 15, preference how to use resources and funds, mandatory changes in diplomatic, political and economic positioning.

Ignoring the presence of a problem or a negative outcome, or refusing to see its magnitude because you think you and your administrative team will pay the price for mistakes or wrong decisions, would directly lead you to the first option I just mentioned above. Then, you may have to face greater challenges in eliminating the problem once and for all.

As far as I can see, a significant part of USD/TRY movements have been caused by the investors’ impression of Ankara, thinking the Administration was going towards the first option.