Inflation Continues to Plague the Turkish Economy

Dr. Doga Ozturk

Inflation keeps on rising in Turkey. According to the latest figures published on 5 September 2022, the official inflation rate has reached 80.21% in August 2022, with a monthly increase of 1.46%. It is the highest rate of inflation recorded in the past 24 years. Meanwhile, the independent ENAG measured the inflation to be a staggering 181.37% with a 5.86% monthly increase in August 2022.

As things stand, it is not difficult to predict that the rising trend in inflation will continue in the foreseeable future. In the beginning of September 2022, there was a price hike of 20% for domestic consumption and 50% for the industry in both gas and electricity. Besides adding to the energy bills of Turkish consumers, this increase in input costs of Turkish businesses will certainly translate into a further rise in the prices of almost all goods and services. Meanwhile, the depreciation of the Turkish lira has continued. Going against the general consensus prevalent in the world, as well as established rational economic policies, the Turkish Central Bank reduced the interest rates to 13% in August in line with the new “Turkish Economic Model” the Erdoğan government has put in practice in the final months of 2021. Not surprisingly, lowering of the policy interest rate has led to Turkish Lira losing its value against the major world currencies. Since the Turkish economy depends mainly on imports, the depreciation of the lira will add to the woes of Turkish consumers who are already battling with the high cost of living.

This economic landscape does not bode well for President Erdoğan. In a poll conducted by Türkiye Raporu (Turkey Report) on the economic expectations of the Turkish electorate, around 55% has predicted the economy to worsen next year while 21% argued that it would remain the same. Importantly, it seems that Erdoğan is finally coming to accept the situation, albeit in a grudging manner. Abandoning his earlier position of denial, Erdoğan has recently (30 August 2022) started to define the high cost of living as the country’s “biggest problem.” He assured, however, that they would start reaping the results of the new economic model by the beginning of 2023 and asked for a little bit of patience from the Turkish people. Nevertheless, Erdoğan’s predictions should be taken with a pinch of salt since he had made similar promises in the past, which generally failed to materialize. Overall then, it would not be too far-fetched to argue that a difficult winter lies ahead of President Erdoğan and his allies, to borrow the words of Can Selcuki from Turkey Report, unless he magically manages to fix the Turkish economy and find viable solutions to the cost of living crisis under which people in Turkey continue to struggle.