In the past month, Turkish inflation reached its highest level since 1998 at 73.5 percent. The prices of transport, food and consumer electronics in particular rose. “That is really unprecedented. We can compare this with the situation in countries in South America and Africa,” says analyst Corné van Zeijl of Actiam.
What is the main cause of the skyrocketing inflation in Turkey?
This is mainly due to the unorthodox monetary policy of Turkish President Recep Tayyip Erdogan. According to most economic theories, inflation falls as interest rates rise, but Erdogan still maintains the opposite line of reasoning. “That is quite unique. There is therefore no longer an independent central bank in Turkey. In addition, the rate of the Turkish lira continues to fall, making imports more expensive. That also has a negative effect on inflation.” says Van Zeijl.
What does this mean for the Turkish economy?
Strangely enough, the Turkish economy grew by 7.3 percent in the first quarter of this year. Van Zeijl is not surprised about this. “In the short term, the policy does not have to be bad for the economy. Many consumers spend their money on, for example, cars, which are in high demand in Turkey. They would rather buy a car now instead of next year, because a car might is ten times more expensive. That applies to more products, so there is more demand.”
What needs to be done to turn the tide?
Erdogan continues to speak out against raising interest rates in order to curb the sky-high inflation in the country. The Turkish central bank kept interest rates unchanged at 14 percent for the fifth consecutive month, despite rising inflation and pressure on the Turkish lira. “The only way to turn the tide is to let the central bank determine monetary policy. And that means raising interest rates. But then it is still questionable whether things will get better soon, as Turkey has been in the business for a long time. this situation.”
How long can a country suffer from such sky-high inflation?
A country can wear this for a very long time. Just look at the situation in Argentina, this country still exists. For the Turkish population, this means that they will also have to deal with significant price increases for all kinds of products in the coming period. “People will spend their money as quickly as possible for fear that everything will become more expensive again. Or they will seek refuge in dollars or gold,” says Van Zeijl.
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