by Burak Akinci
ANKARA, March 6 (Xinhua) — Turkey’s high inflation rate has yet to fade, even after the government introduced measures to combat price hikes, and high inflation is expected to continue due to a global rise in energy prices and complicated geographical situations, analysts have said.
Inflation in Turkey has increased from 48.7 percent in January to 54.44 percent in February, hitting a 20-year high. High inflation has dealt another blow for the Turkish lira, which has lost about 60 percent of its value since the beginning of 2021.
Despite inflation is running at a fast pace, Turkey’s central bank has cut interest rates by 500 basis points to 14 percent, following Turkish President Recep Tayyip Erdogan’s economic policy of lowering borrowing costs. Credit, exports, and investment, he believes, will help the Turkish economy deal with inflation.
In February, the Turkish government took measures to help households whose purchasing power has dwindled, including a significant cut in taxes for basic foods and a reduction in surging power bills.
The government has also launched a new mechanism to bring “under-the-mattress” gold into the economy.
However, Turkey’s commodity prices have continued to climb due to the country’s heavy reliance on imports for energy, raw materials and food supplies.
The ongoing Russia-Ukraine conflict has also added pressure to Turkey’s economy. Turkey has close trade ties with both Russia and Ukraine in construction, tourism, wheat imports, and fresh fruit and vegetable exports.
“We are witnessing a steep rise in inflation in the past three months. The prices of basic food have surged despite tax reductions, burning the pockets of households,” independent economist Mustafa Sonmez told Xinhua.
According to him, inflation in Turkey is expected to grow to more than 60 percent in the months to come as a result of the global hike in oil prices, which will be reflected in future price increases in Turkey’s commodities. Prices of grains, which Turkey imports mainly from Ukraine and Russia, have already surged.
The government’s economic program relies on a stable lira and a narrower trade and current account deficit. But recent data suggests that some revisions may be needed.
The lira has lost around 3 percent since the start of the Russia-Ukraine conflict while Turkey’s trade deficit climbed 142 percent year-on-year in February to 8.1 billion U.S. dollars, mainly due to a swelling energy import bill, trade ministry data showed on March 2.
Senol Babuscu, a finance professor from Ankara’s Baskent University, claimed that the price of gasoline had increased by 42 percent since the beginning of the year.
Babuscu urged the government to “return to orthodox, established economic policies,” implying that the central bank should raise interest rates to cool price increases.
He warned the Russia-Ukraine conflict might deal a fresh blow to inflation figures in the months ahead.
While Turkey is suffering from high inflation, high growth numbers have bolstered morale.
The country has registered a robust growth rate of 11 percent in 2021, the strongest in the past 10 years. In the fourth quarter of 2021, the Turkish economy grew by 9.1 percent, according to official data published on Feb. 28.
However, institutions and experts believe last year’s strong growth rate will not be sustainable.
In a recent report, the World Bank forecasted a 2 percent expansion for Turkey’s economy in 2022 amid a general decline in purchasing power.
“Turkey’s economy is likely to expand at a much slower pace this year as rising domestic macroeconomic and financial challenges moderate growth in 2022,” according to the report.
According to analysts, Turkey’s economic growth in 2022 will be weaker than in 2021 due to Turkish households’ desire to spend less as prices rise.
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