Turkey’s inflation continues to rise as the data published by the Turkish Statistical Institute (TURKSTAT) the Consumer Price Index (CPI) has surged to 80,21 percent annually with a 1,46 percent rise in August, the highest inflation recorded in the country in 24 years.
According to TURKSTAT figures, in August 2022, CPI increased by 1.46 percent compared to the previous month. According to the twelve-month averages, inflation surged to 80 percent. The Producer Price Index increased by 2.41 in August. Annual PPI realized as 143 percent.
However, there is a growing dispute over the veracity of the official data as some economists and critics argue that the real rate of inflation was almost double the official figure.
According to the calculations of ENAGrup, the group of independent academics who calculate inflation based on daily price increases, the Consumer Price Index increased by 5.86 percent in August, rising by 181 percent annually. The increase since the beginning of 2022 was 91.62 percent.
Minister: “Inflation surge will slow down”
Following the announcement, Treasury and Finance Minister Nureddin Nebati stated that “August inflation data support government’s projection that the inflation surge will slow down in comming months.”
“We will swipe away high inflation from this country, never to return,” he posted on his official Twitter account on Sep. 5.
Turkey’s inflation has surged to 80 percent in one year as Turkey’s Central Bank has been adhering to a stimulus monetary policy to boost export led economic growth. President Tayyip Erdoğan has been defending to keep the policy rates low arguing that the “interest rates are the reason of the high inflation.”
In line with Erdoğan’s “unorthodox” policy choices, the Central Bank Monetary Policy Committee (PPK) decided to further cut the policy rate from 14 percent to 13 percent on August 18. The bank has been cutting the rates since 2021 as in 8 months it was lowered to 19 percent to 13 percent despite TL’s historic depreciation.
After this controversial decision, President Tayyip Erdoğan defended the his position in his speech on August 22, saying, “Turkey’s need is not to raise interest rates, but to increase investment, employment, production, exports and current account surplus.”
“We are all in the same boat. If the ship sails fast, we will all be winners. If it sinks, we will all drown,” he said, asking the citizens and the business world to stay in the TL in order to stop the depreciation of the inflation in the Turkish Lira.
Minister Nebati reiterated Erdoğan’s policy choice, stating that Turkey will not adopt tightening policies.
The world’s largest economies grapple with inflation and recession concerns. These countries are concerned that their economies will come to a standstill in the face of the highest inflation rates in the last 40-50 years. While the processes of fighting inflation take place with the gradual tightening of monetary policy in many countries, many countries in the world apply negative real interest rate policies due to the possibility of recession,” he said.
“We continue our fight against inflation without stopping investment and production. We also use our policies to encourage investment and production. Thus, machinery and equipment investments increased by 17.8 percent in the second quarter of 2022 compared to the same period of the previous year,” he added.
According to the Mid-Term Program published by the government, the 2023 growth target is determined as 5 percent, the 2024 and 2025 growth target was determined as 5.5 percent. The government targets 65 percent inflation at the end of 2022 while targets 24.9 percent inflation for 2023, 13.8 percent for 2024 and 9.9 percent in 2025.
As the TL has lost almost 20 percent of its value against US Dollars this year, almost 50 percent in one year, Erdoğan’s AKP government introduced currency protected deposit account scheme in December 2021, as an incentive to stay at the local currency to control the depreciation in lira.
The total balance of the scheme reached TL 1.3 trillion as of September 1, 2022 amid the discussion on its burden on the treasury. According to the data of the Ministry of Treasury and Finance, the total amount paid for the program from the budget in the last five months has reached 60.5 billion TL.
While the deteriorating effect of the high inflation on the purchasing power has reached an alarming level with further increased energy prices, Turkey’s economy grew 7,5 percent in the first quarter, 7,6 percent in the second quarter.
Despite the growth, the share of the wage earners from the 3 trillion 419 billion liras of National Income (GDP) remained at 21.4 percent. In the second quarter of 2021, the share of the labor sector, which was 32.6 percent a year ago, decreased to 25.4 percent, while the share of the capital increased to 54 percent from 49.2 percent in the same period.