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In July, inflation in Turkey edged up to 79.6 percent from 78.6 percent in June and has further to climb, Bloomberg reported.
In Istanbul, the country’s most populous city, prices in July virtually doubled over the past 12 months, notching a 99-percent gain.
Turkey’s central bank now says inflation will peak at 85 percent in September or October, then settle at about 60 percent at the end of this year.
The bank’s past predictions of slowing inflation have proved invalid several times in the recent past.
The central bank is powerless against rising prices because Turkish president Recep Erdogan has enforced a policy of low interest rates, which he insists will lower inflation, despite economic theory and his country’s own experience over the past two years.
The standard treatment for inflation is for central banks to raise interest rates to discourage spending.
When three successive central bank officials raised rates to follow standard economic practice in dealing with inflation, Erdogan fired them, as we documented in “Turkey’s Central Bank Governor Fired After Rate Hike” (23 Mar 2021) and Turkey: Another Day, Another Central Bankster Fired” (1 Jun 2021).
Instead, Erdogan claims he is pioneering a “new economic model” in which skyrocketing inflation will make Turkey’s exports dirt-cheap and bring a flood of revenue into the country, creating widespread prosperity. (See “Erdogan Raises Turkey’s Minimum Wage By 30 Percent,” 5 Jul 2022.)
The country’s soaring prices and contrarian policy has dropped the value of the Turkish lira by 25 percent against the dollar so far this year.
The Central Bank of the Republic of Turkey still will not raise interest rates, Sahap Kavcioglu, the bank’s governor, declared in a late July public statement.
When reporters asked him about other central banks raising rates to tackle inflation, “time will tell who was right,” Kavcioglu replied.
“We see no signs of stabilization in the macroeconomic environment for Turkey arising from the current unorthodox monetary policy and [we] recommend refraining from investing in Turkish assets,” strategist Nenad Dinic at Bank Julius Baer wrote in a recent research note.
PUBLISHER’S NOTE: Erdogan’s quest to overcome economic reality is well-known to Trends Journal readers through a series of reports, including:
- “Turkey’s Financial Markets Crash After Agbal Firing” (30 Mar 2021)
- “Turkey: Interest Rates Down, Lira Crashing. War Next?” (19 Oct 2021)
- “Turkey’s Economy Continues to Implode” (14 Dec 2021)
- “Turkey’s Inflation Rate Nears 50 Percent” (8 Feb 2022)
- “Turkey’s Bonds Downgraded, Worse to Come” (22 Feb 2022)
- “Turkey’s Economy Weakens Further Under Erdogan’s Policy” (14 Jun 2022)
TREND FORECAST: Erdogan is running for re-election next year and watching his political popularity erode with the lira’s value. However, he has committed himself so deeply to his wrongheaded economic views that he is unlikely to change them unless Turkey’s economy collapses entirely. Abandoning them now would be a public admission of his incompetence, as we noted in “Erdogan Raises Turkey’s Minimum Wage By 30 Percent,” 5 July, 2022.
Instead, as next year’s election nears, Erdogan and his hand-picked sycophants at Turkey’s central bank will craft new short-term measures that will loot the bank’s reserves to give the lira CPR.
As he becomes more desperate, domestic protests will increase. This will give Erdogan a pretext to find “terrorists” and “foreign troublemakers” among his critics, cracking down even more on personal freedoms and increasing the chances of a rigged election in his favor next year.
Ultimately, Erdogan may seek to distract his nation with military action. As Gerald Celente often says, “When all else fails, they take you to war.”