inflation is almost 70%, stone in Erdogan’s shoe

published on Thursday 05 May 2022 at 17:11 hrs

In April, inflation in Turkey rose to nearly 70% year-on-year, weighing on households and President Recep Tayyip Erdogan’s chances of reelection in 2023.

The government’s promises and the VAT cuts announced at the beginning of the year for basic necessities in particular have failed: prices continued to rise by 7.25% in April, in the middle of Ramadan, culminating in inflation of 69.97%, the highest since February 2002.

The rise in consumer prices, which has continued over the past 11 months, is becoming unsustainable: it was already more than 61% year-on-year in March, due to the collapse of the Turkish lira and the rise in energy prices.

Despite fears of new price hikes linked to the war between Ukraine and Russia, from which Turkey imports energy and grains, the Turkish Central Bank has not yet raised its interest rates, which have remained stable at 14% since the end of 2021.

President Recep Tayyip Erdogan, who believes, contrary to conventional economic theories, that high interest rates promote inflation, had forced the institution to cut its key rate from 19% to 14% between September and December, leading to a fall in the pound.

– “I am ashamed!” †

Shoppers confess their anger at the large vegetable market in Bomonti, a residential area of ​​Istanbul.

“People are hungry! I feel ashamed when I go shopping,” adds Rita Ezel, retired. “ON the 10th of the month my pension has already melted”.

“We are in a desperate situation,” said Seckin Gozuyasli, a 50-year-old who blames “government policies and the Syrians”, referring to the 3.6 million Syrian refugees hosted in the country.

Inflation is at the center of debates in Turkey 15 months before the presidential elections scheduled for June 2023, with the opposition accusing the National Bureau of Statistics (Tüik) of deliberately underestimating its size.

A discrepancy that does not escape Yuksel Cinar, a salad seller who grumbles while clearing his stall.

“I’ve been working here for 35 years. Four of us work from home and we can barely bring in the bread. Those inflation numbers… I wonder how they calculate it… They should come here and see how that happens.”

Independent Turkish economists from the Inflation Research Group (Enag) said Thursday morning that inflation reached 156.86% year over year, more than double the official rate.

Despite polls predicting close elections, Erdogan hopes to be reappointed in 2023, after two decades as prime minister and then president.

– “Embarrassing for Turkey” –

The head of state, who had promised in January to reduce inflation to single digits “as soon as possible”, assured last week that it “will slow down after May”.

However, continued hyperinflation would risk damaging the popularity of the president, who has built his electoral successes over the past two decades on his promises of prosperity.

The Turkish Central Bank also had to revise its year-end inflation forecast upwards last week, estimating it to come in at 42.8% – well above its 23.2% forecast.

“It’s going to be embarrassing for Turkey,” said Timothy Ash, an analyst at BlueAsset Management and a specialist in Turkey. “There is certainly a rise in food and energy prices, but it is also the spectacular failure of Turkey’s monetary policy.”

According to Jason Tuvey, of the London firm Capital Economics, inflation should continue to grow in the coming months, “there is no indication that the Central Bank of Turkey is about to raise its interest rates”.

Turkey has seen near-constant double-digit inflation since early 2017, but had never seen such a spike in consumer prices since President Erdogan’s Justice and Development Party (AKP) came to power in late 2002.