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Inflation in Turkey reached an annual rate of 48.7 percent in January, speeding past December’s pace of 36.1 percent, according to the government’s statistics agency, and notching the worst mark since 2002.
Electricity, food, and gas costs were key drivers of price increases, meaning that inflation is hitting the poor the hardest.
Independent economists gathered data indicating that January’s rate was closer to 110 percent, leaving them open to criminal charges: as we reported in “Turkey: A Crime to Tell the Economic Truth?” (5 Oct 2021), a group of academic economists was referred for prosecution when they contradicted the statistics’ agency’s official October rate of 19.5 percent, claiming the real number was closer to 40 percent.
Last month, president Recep Erdogan fired the statistics agency’s leader when he reported December’s inflation rate (“Turkish Lira Pauses Its Decline; Erdogan Fires Statistics Chief,” 1 Feb 2022).
Turkey’s currency, the lira, has been battered by the country’s raging inflation, losing 44 percent of its value against the dollar in 2021.
The country’s central bank has been depleting the nation’s foreign-currency reserves to buy lira to shore up its value, but so far the effort has failed to reverse the lira’s fate.
Last month, the bank canceled a planned 5-percentage-point interest rate cut, which has helped to stabilize the lira.
Government economic support, and its promise to make good certain losses on people’s savings accounts due to inflation that we reported in the 1 February article cited above, also has helped slow the lira’s slide.
Returns on lira-denominated investments, adjusted for inflation, are now about -35 percent, by far the worst among emerging economies, according to Bloomberg.
Turkey’s losing battle with inflation arises from Erdogan’s dogged insistence that low interest rates bring down inflation, a notion contrary to basic economic theory as well as historical experience.
He ordered the bank to make four successive rate cuts last year and has fired a succession of central bank chiefs when they raised interest rates contrary to his wishes.
Read more about Erdogan’s battles with economic reality in:
- “Turkey’s Central Bank Governor Fired After Rate Hike” (23 Mar 2021)
- “Turkey’s Financial Markets Crash After Agbal Firing” (30 Mar 2021)
- “Turkey: Another Day, Another Central Bankster Fired” (1 Jun 2021)
- “Turkey: Interest Rates Down, Lira Crashing. War Next?” (19 Oct 2021)
- “Turkey’s Economy Continues to Implode” (14 Dec 2021)
Still, Erdogan refuses to shift his policy.
“We will lower interest rates as we have done already,” he declared in a 29 January public speech, adding “inflation will decline as well.”
Still, he acknowledged two days later in another statement that Turks “will have to carry the burden of inflation for some time.”
Still, “there is no turning back” from the central bank’s policy of keeping interest rates below inflation, finance minister Nureddin Nebati said in a Nikkei Asia interview.
“We have no rate hike in our agenda,” he said, and predicted that Turkey’s inflation rate will peak in April and plunge to single digits by June 2023, when the country holds its next presidential election.
The central bank disagrees with Nebati; it has revised its inflation forecast for the end of this year upward from 11.8 percent to 23.2 percent.
“We expect inflation to hover at 45 to 50 percent throughout much of this year and, barring another collapse in the lira, it will only drop back in the final months of 2022,” Capital Economics analyst Jason Tuvey told Bloomberg.
TREND FORECAST: Turkey’s crisis has only worsened since we wrote in “Spotlight: Turkey in Crisis” (11 Jan 2022) that Erdogan will not acknowledge the abysmal failure of his policies.
He also is unlikely to surrender power, whatever the result of the next election: his 2018 re-election was marked by widespread claims by opponents and independent observers of ballot-stuffing and other forms of corruption.
Erdogan has framed his opposition to higher interest rates in moral and military terms, proclaiming himself an “enemy” of high interest rates and casting his policy to be part of an “economic independence war.”
It is not surprising that Erdogan frames his failed policies in warlike terms. As Gerald Celente notes, “when all else fails, they take you to war”—in this case, casting his economic failures as a response to what he will term “hostile outside forces” in hopes of unifying the nation behind him.
Erdogan has already played that card once, invading Syria in 2019 (“Turkey Announces Invasion of Syria,” 8 Oct 2019).
It’s not working: Erdogan’s popularity, which is now around 40 percent, will keep sliding along with stock values and the lira.
Turkey will continue to spiral down into economic and political chaos, prompting street demonstrations and, in all probability, violent response from government troops as Erdogan clings ever more desperately to power. Also, please see “ERDOGAN INJECTS TURKEY INTO UKRAINE CONFLICT” in this issue.