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Inflation to be Under Control, says Central Bank of Turkey

The new Chief of the Central Bank of Turkey, Faith Karahan, made his first public appearance, after replacing Hafize Gaye Erkan, who resigned last Friday after blaming a media smear campaign against her. 


 


Turkey announced their first Inflation Report for the year. The country is currently undergoing a cost of living, a housing problem and increasing consumer demand alongside excessive inflation. The current inflation crisis was caused when the government mistakenly believed that lowering bank rates would lead to subduing inflation, which caused the inflation rate to skyrocket. Erdoğan who has historically opposed higher interest rates, has so far been supportive of his financial team, it remains to be seen how long this friendliness remains, as economists believe he may announce new policies before the upcoming elections. 


 


Karahan announced that the target inflation rate remained the same at 36 per cent for 2024 and 14 per cent for 2025. 


 


What is the current situation? 


The inflation rate was nearly 65 per cent in January, and according to the Chief will continue to rise to 73 per cent in Q2 2024 before cooling off. The rate being high in January can also be attributed to the Centre raising the minimum wage by 49 per cent, to help people deal with the crises. 


 


In individual sectors, housing and utilities saw a significant increase of 5.6 percentage points, going from 40.39 per cent in December to 45.99 per cent in January. Restaurants and hotels which were the worst hit saw a bit of stability with rates going down to 92.27 per cent in January from 93.24 per cent the previous month. 


He also announced that the increased repo rates should help keep inflation on target; rates were increased from 8.5 per cent to 45 per cent. This is in continuation of his predecessor's policies, which Karahan was supportive of. This sharp increase is almost essential at this point to prevent wage-price spirals, wherein an increase in wages consequently leads to an increase in prices, which means that an increase in wages is effectively of no material benefit. 


 


Karahan added that consumer demand, one of the principle causes of runaway inflation, had lessened in January, due to the tighter fiscal policies. He also believes that ‘panic buying’ is supposed to go down, currently people are buying goods immediately instead of offsetting purchases, with a fear that prices will go up; as prices stabilise this is naturally bound to lower. 





 


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Tags: #Inflation #Turkey #Economics



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