Erdogan's monetary policy promotes record inflation

Inflation in Turkey has reached a record level. Life has been expensive, and purchasing power has diminished. However, Erdogan does not want to increase interest, thus causing even greater inflation growth.

The Turkish economy is in a bad situation, as it has not been for a long period. For two years the value of the Turkish lira has been falling steadily. Continued pricing, especially at the price of food, has greatly burdened the Turkish population.

Anyone who has hoped for improvement soon now is disappointed again. Turkish Statistics Institute ( T⇩, which publishes the price index for consumers each month, confirmed that prices have risen again last month. In June, there was a 1.94 per cent increase compared to a month ago, the inflation rate is now 17.5 per cent. Energy prices have also risen for a year of 42.9 per cent. Thus inflation reached the highest level of the last two years.

Corona politics influences inflation

Oguz Demir from the University of Commerce in Istanbul says that the so-called <x0 abnormalisation” has affected inflation. The government abolished a large part of the measures taken to combat pandemic on July 1st. Removing the ban and returning people to jobs have increased consumption, economist Demir says.

In view of the enormous demand, producers and enterprises made price adaptations in June. In fact, it would not be surprising that inflation had been even higher,” estimates Demir.

Just the beginning?

Many economic experts think this tendency will continue to grow in the near future. The next few months are expected to increase inflation for various reasons. On 1 July all over Turkey, gas and electricity prices rose. This has to do with the continuing decline in currency value. Turkish lira has lost value again, so the US dollar has been expensive. Energy firms have suffered losses because imports from abroad are kept on the dollar course. Enterprises try to reduce or turn income deficit to zero by increasing prices.

Experts think that even very dry wine has an impact on inflation. Drought has caused food prices, especially vegetable prices and fruit to grow. In July, we'll probably say how good it was in June. In August, we'll say how good it was in July. In other words: we will have a serious inflation period,” thinks unjustlyner Güncavdi from Istanbul Technical University.

The purchasing power is down.

According to data from the Turkish Statistics Institute, Tüik, transportation costs (plus 26,29 per cent) have increased, especially, by 51.6 per cent. Equipment Pricesand households have grown by 25,69 per cent and food content by 19,99 per cent. Many economists think the inflation rate in Turkey will reach 20 per cent very soon.

The gap between rich and poor in Turkey is growing

Negative price development greatly affects the distribution of income in society. The gap is getting deeper and deeper: The middle layer has almost disappeared and Turkey is dividing into rich and poor. Since price hikes have especially affected basic foods, those who feel the most the consequences of inflation are people with low incomes and the poor. The high level of inflation “affects more specific segments of society and has undesirable consequences for poverty and income distribution,” estimates Güncavdi.

Erdogan with non-conservative monetary policy

Many in Turkey hold the Turkish government's monetary policy responsible for this development. Turkish President Recep Tayip Erdogan supports keeping loans at a low level of interest, because in this way it is cheaper, which ultimately promotes economic growth. A non-conservative recipe, because in most of the popular economies, an increase in interest is usually made when inflation is high.

There have been months of inflation in Turkey on the rise, but Erdogan has not given up on his monetary policy and has put the Turkish National Bank under pressure. He has regularly fired senior Central Bank officials because they refused to reduce interest. He recently replaced National Bank Director Naci Agbal with Seap Kavcioğluın, a former commander of Turkey's ruling AKP party.

Economy experts demand increased interest

"Güncavdı think this maneuver in monetary policy is wrong. To ease the pressure caused by rising inflation, measures must be taken to reevaluate the Turkish lira as soon as possible. Interest should be increased, the economist points out quite Güncavdı.

According to the International Monetary Fund's inflation report, (IWF), published in April, Turkey ranks 14th on the list of high inflation countries. In the IMF report, it is said that in Europe and the Middle East, Turkey is far ahead of Iran and Libya alone.