Mesud Yasar is a greengrocer from Istanbul of retirement age who has never worked as many hours as he has this year. The increase in inflation in Turkey, which reached 80.21% annual rate in August, forces him to spend more hours selling vegetables in order to make ends meet. “I can’t cut prices any further because the clientele has gone down a bit. We juggle to be able to earn a little more and pay the bills,” he explains.
Ugly vegetables that no one used to buy are now sold for half price on a corner in his neighborhood on Saturdays. From the rest he makes pickles that his wife sells in another market. For five months, her children have been cooking vegetable-based menus at home and selling them to neighborhood workers through her Instagram account. “Even so, we began to have debts. Fertilizers have increased a lot in price and gasoline for transportation as well. We are drowning,” she laments.RELATED
In the last year, the Turkish government has twice increased the minimum wage to 5,500 liras (about 300 euros) to give a break in the face of rampant inflation, although it is still insufficient for many families. According to the Turkish Consumer Rights Association, more than half of the population lives below the poverty line. About half of the workers with a formal contract in Turkey are paid the minimum wage and their increase is not adjusted to the increase in market prices. Rents, gas, electricity and transport bills have increased between 50 and 100% in recent months.
While in the euro zone inflation breaks records and has exceeded 9% due to the increase in energy prices after the Russian invasion of Ukraine, in the Turkish case the rise began more than a year ago. In September 2021 there was a crash in the Turkish lira caused by a cut in interest rates by the Central Bank, under pressure from Turkish President Recep Tayyip Erdogan. The president assures that interest rates are “the mother of all evils” and insists on lowering them. The Central Bank has cut in the last two months up to 200 points interest rates, which have remained at 12%, well below current inflation.
Most economists recommend that the rates be balanced with inflation because otherwise, the interests become negative. The Turkish president has fired three central bank chiefs in the last three years in an attempt to impose his vision of the economy. His interventions in the body have caused great distrust in the markets and the lira has depreciated 28% against the dollar so far this year and 80% in the last five years. However, Erdogan has insisted this week in your policy: “My main battle is against interests. My main enemy is interests.”
Several economists believe that the Government may be allowing the devaluation of the currency to encourage exports and tourism in the country. The truth is that in the first half of the year the GDP has grown by 7.5% and exports have increased by 18%. For the economist Emre Deliveli, this increase in exports is temporary and he doubts that the government’s plan is working.
“Of course, with the devalued currency, our goods are more attractive, but the GDP has grown above all due to national consumption. People who can and have savings spend them now because they know that prices will increase in the coming months. But this consumption will slow down.” sooner or later. We will see the economy slow down in the second half,” says Deliveli.
While some economic indicators are positive, street prices continue to rise. The Istanbul Chamber of Commerce has declared that inflation in the city has reached 100%, while the independent group of economists ENAG assures that the Government is making up the inflation figures and that the real price increase could be around 180%. . “A friend is a manager in one of the biggest supermarket chains in Turkey. He has investigated the price increase in the last year and it is around 110% in supermarket goods,” says Deliveli.
“We notice it in basic products such as milk. A year ago I bought a carton for about 10 lira, now it is 18 and it keeps changing. I try to follow the offers and buy in various supermarkets. It takes longer, but it pays off,” Mina explains. Çagdas, a teacher in a nursery school.
At the beginning of the year, economists claimed that the devaluation of the Turkish currency caused a rise in prices. Since the summer, the currency has been stable at 18 liras per euro, but prices continue to rise. “There has come a point where the currency is not what causes inflation, but expectations. For example, a small shoe repair shop increases prices because it sees that electricity, water and other products are increasing in price And so everyone enters a circle in which prices increase,” explains Deliveli. On the other hand, the Turkish authorities may be artificially keeping the lira stable by using up foreign exchange reserves, a move many economists warn is unsustainable.
Finance Minister Nureddin Nebati has tried to head off criticism over the handling of the economy and said in early September that prices will begin to fall by the end of the year. “I promise you and the president that we will see a drop in inflation at the end of December,” Nebati said. The economist Deliveli agrees that inflation will fall at the end of the year, but because it is calculated in relation to the prices of a year ago, when Turkey had already begun to suffer serious inflation. “It’s just a math question. Of course we are going to see a bit of a fall, but for now the situation will not improve.