You can’t bring down inflation by raising interest rates…

So, I’ll get right to the point: it is not possible to control high inflation by increasing interest rates; because, this is not a demand-pull inflation Turkey is facing right now. This is a direct outcome of cost inflation. Let me give you some examples. Below is a list of consumer goods and services with price increases on a monthly basis:

Onion 82,53
Potato 63,34
Carrot 57,72
Green Bell Pepper 57,28
1-week or longer domestic trips 50,23
Lemon 35,32
Internet service fee 32,27
Tomato 23,59
1-week or longer international trips 14,99
Scallion 14,84
Apple 12,49
PC & laptop 9,13
Ironing devices 9,07
Chicken meat 8,95
Intercity bus fares 8,31
Oven 7,51
Cucumber 6,87
Washing machine 6,67
Airline tickets 6,51
Dishwasher 6,03

Very few of these goods and services are directly affected by the seasonality. Dynamic rise in agricultural prices is a rare phenomenon. In my previous reports, I have mentioned the presence of a monopoly or an oligopoly in agricultural markets. I must say that the Ministry of Agriculture has not been very successful neither in the consolidation of agricultural lands nor in agricultural products inspection so far. There may be a problem with demand but there is no demand-pull inflation. Both producers and consumers are forced to depend on a handful of people who are exploiting the market. We all know what happened to potatoes and onion prices. By the way, something very similar to this potato/onion business happened with iron and steel prices months ago. To deal with that problem, we had to liberalize the imports of iron and steel products. Not a very creative solution, don’t you think? As far as we are concerned, producers have lost in either case.

“Higher interest rates will make the rich, richer and the poor, poorer…”

First of all, we should know that Turkey is struggling with severe cost inflation, and we are to face the most dangerous part of it if we let ourselves to get used to these numbers; because, once we get used to it, there will be no coming back. These are the kind of situations that created the wealthy people of this country. There is not a single person among them who has been able to become rich with an export business empire. They have grown larger and stronger by selling goods to their own fellow citizens in markets where prices are constantly increasing. The fact that Turkey’s leading supermarket chains are arranging their payments in very inconvenient instalments to their suppliers has eventually created a massive money cheque market.

Companies getting all high and mighty on consumers or suppliers are freely making their own debt plan, managing their debt schedule or determining maturity dates and prices as they wish. And they do all of this under the pretext of “But, we are offering big discounts”, thus feeling themselves entirely justified.

As far as we can see, it is impossible to talk about the presence of a demand-pull inflation. Accordingly, attempting to fight back against inflation by constantly hiking interest rates would be nothing but suicide. The rich will get richer and the rest will get poorer as long as those who are exploiting the markets continue to be able to set their own maturity dates and prices.