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TURKEY’S INFLATION RATE TOPS 54 PERCENT
In February, prices in Turkey rose at an annual clip of 54.4 percent, the Turkish Statistical Institute reported.
The rate is the fastest since March 2002 and edged past the 52.5 percent expected by economists Bloomberg had polled.
Food prices skyrocketed 64.5 percent over the last 12 months and transport costs zoomed 75.8 percent.
February’s producer prices more than doubled, year over year, increases that will be passed to consumers in the months ahead, analysts told the Financial Times.
The lira sagged another 0.8 percent on the news, settling at 14 to the dollar.
“I don’t remember the last time I entered a butcher shop,” one woman told the FT. “Meat is a meal for the rich.”
“All I can do is turn off the lights,” she said. “There’s no other way to stretch my budget.”
Under orders from Turkish president Recep Erdogan, the country’s central bank cut interest rates by 5 percentage points over the past five months, despite inflation accelerating during that period.
We have documented Turkey’s economic tailspin in articles including “Turkey’s Financial Markets Crash After Agbal Firing” (30 Mar 2021), “Turkey: Another Day, Another Central Bankster Fired” (1 Jun 2021) and “Turkey: The Famous Lira Dive” (23 Nov 2021).
Erdogan, a self-proclaimed “energy of high interest rates,” holds to his theory that low interest rates will reduce inflation and stimulate Turkey’s staggering economy.
Turkey’s lira has lost almost half its value in world markets since January 2021, a fate that Erdogan hopes will boost Turkey’s exports by making them cheaper abroad and spark job gains at home.
Three-quarters of Turks responding to a Metropoll survey said the government is mismanaging the economy, despite the country’s 9-percent GDP growth in 2021.
Erdogan now promises to bring inflation under control this summer, a promise that is fanciful at best if interest rates do not rise above the rate of inflation, economists told the FT, especially now that Russia’s war in Ukraine has spiked global energy prices.
Turkey imports most of its oil, gas, and coal from Russia.
“Inflation will stay close to these high levels until the very final months of this year,” economist Jason Tuvey at Capital Economics said to the FT, “but the central bank and, crucially, President Erdogan seem to have no appetite for higher interest rates.”
Erdogan faces re-election in June 2023 and is watching his popularity crash with Turkey’s economy.
PUBLISHER’S NOTE: Read a more detailed account of Turkey’s economic disaster in:
- “Turkey’s Central Bank Governor Fired After Rate Hike” (23 Mar 2021)
- “Turkey: Interest Rates Down, Lira Crashing. War Next?” (19 Oct 2021)
- “Turkey’s Economy Continues to Implode” (14 Dec 2021)
TREND FORECAST: Erdogan is as unlikely to reverse his economic policy, to which he has glued his personal credibility, as he is to surrender power regardless of next year’s election. His 2018 re-election was marked by widespread claims of vote-rigging and election fraud.
As we said in “Turkey’s Inflation Rate Nears 50 Percent” (8 Feb 2022), 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), and recently tried to insert himself as a peacemaker between Russia and Ukraine before Russia invaded (“Erdogan Injects Turkey Into Ukraine Conflict,” 8 Feb 2022).
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.
LONDON METALS EXCHANGE HALTS NICKEL TRADING
The price of nickel skyrocketed 250 percent on the London Metal Exchange on 7 March, at one point trading above $100,000 a ton and triggering a shutdown in trades of the metal.
The unprecedented one-day price surge was caused by traders desperate to close out short positions—bets that nickel’s price would fall.
Mining companies and refiners often take short positions to protect against price swings. In theory, price moves on exchanges and in physical inventories should negate each other, leaving the player even.
However, when prices rise quickly and sharply, those holding short positions have to put up more and more cash or collateral to make up the negative balance in their trading accounts.
China’s Tsingshan Holding Group Co., the world’s largest nickel and stainless steel producer, had accumulated a massive short account over recent months as nickel’s price moved relentlessly up. Brokers were putting an increase on the company to meet its margin calls.
When Monday’s price spiked, Tsingshan was faced with billions of dollars’ worth of deficits it owed to brokers.
A division of China Construction Bank Corp., a Tsingshan broker, also missed hundreds of millions of dollars in margin calls on Monday but later made up the balance, Bloomberg reported.
After spiking into six figures, nickel fell back to trade at $80,000 a ton before the suspension, a 66-percent one-day rise.
Prices of other metals fell after nickel trading was suspended.
The exchange announced it was considering “a possible multi-day closure, given the geopolitical situation which underlies recent price moves.”
TRENDPOST: Recession paranoia is starting to get stronger. At least, that’s what a number of markets are suggesting as the oil surge and Russia’s invasion of Ukraine put the global recovery in danger.
- Bond market warning: The Treasuries yield curve is the narrowest since the pandemic recession. History shows an outright inversion would signal a contraction is imminent.
- Commodities chaos: Many traders see the latest rally as something that could by itself kick the world into a downturn. The surge in energy prices is particularly ominous as it not only strains household consumption but adds to price pressures.
- Stock signals: Benchmarks in Europe and Asia are heading for bear markets. And while the S&P 500’s peak-to-trough losses have been limited at 12 percent for now, analysis by Deutsche Bank suggests American stocks are still emitting their own troubling signals.
NATIONS TURN TO COAL TO MAKE UP SHORTAGES OF OTHER FUELS
Coal, increasingly spurned as dirtier and more costly than natural gas and renewable fuel sources, is suddenly eagerly sought-after by European nations now in danger of losing Russia’s energy exports or already cut off from them.
Russia accounts for 15 percent of the world’s thermal coal—the variety burned by electric generating plants—traded by sea and 16 percent of higher-grade metallurgical coal used to make stainless steel and other products.
The U.S. price of thermal coal rose from $380 per ton to a record $459 on 7 March.
In Europe, thermal coal’s price hit $446 per metric ton, adding $130 on 2 March alone and almost tripling the $134-per-ton price where coal began this year. The price settled back to $422 on 7 March.
“The thermal coal market was drum-tight ahead of the invasion so there is no chance of the world replacing Russian thermal exports,” analyst Matthew Hope at Credit Suisse told The Wall Street Journal.
Germany has been closing down the last of its coal-fired generators in recent years but now is considering extending their lives to 2030; Poland is seeking to buy coal from Australia to replace Russian imports.
Shares of Australian coal companies closed on 4 March as much as 40 percent above their opening price for the week.
“To deal with the immediate energy situation in Europe, all options should be explored, including increased use of coal in some countries temporarily,” Jean-Sébastien Jacques, former CEO of mining giant Rio Tinto, said to the WSJ.
Coal companies might reopen closed pits or intensify operations at working mines but opening untapped deposits is unlikely, he added.
“The energy transition will take time, potentially decades,” Jacques said. “We have to be flexible and pragmatic.”
TRENDPOST: The war in Ukraine once again highlights the link between national security and dependence on oil and gas. If there is a silver lining to the disaster unfolding in Ukraine, it could be a realization that speeding the shift to renewable energy technologies is a key issue of nations’ security and world peace.