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Prices in Turkey are surging. But by how much?

Homajon

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Prices in Turkey are surging. But by how much?

Depending on whom you ask, inflation is either around 17% or 40%

EARLIER THIS Turkish President Recep Tayyip Erdogan announced in the summer that he has requested the fourth-appointed central bank governor in two years to begin cutting interest rates. Prime Minister Erdogan even provided the start date of the mitigation cycle. “We need to look at July and August for interest rates to start falling,” he said. He may have to wait longer. A week before the bank’s monetary policy meeting on July 14, the national statistical authorities (TUIK) Revealed that June’s inflation swelled to 17.5%, surpassing the most pessimistic forecasts. This is more than three times the central bank’s inflation target of 5% and close to the benchmark lending rate of 19%. In that case, the bank had no choice but to keep interest rates unchanged. It will almost certainly do the same in August.

Many Turks are convinced that the situation is even worse than the data suggest. According to a recent poll, 83% believe that true inflation is higher than official inflation. The Inflation Research Group, an independent group of scholars, believes it is in the 40% territory. The group’s own index relies on price data collected from online retailers and updated several times a day, said project director Veysel Ulusoy.The basket of the product is mainly TUIKHowever, items such as alcohol, education, and health for which the government can control prices are excluded. Ursoy argues that his price index is more in line with consumer and market sentiment.

Due to their trouble, he and his colleagues may be prosecuted. May TUIK Criminal accusations were filed against researchers for the metadata on their website not meeting legal standards. The group “misleads the public” and “damages confidence in official statistics,” the complaint said. That trust seems to be a long time ago.

Inflation is rising in most economies, supported by stimulating spending and fast-growing demand. But Turkey’s problems have a much deeper root. Double-digit inflation settled four years ago. This is the result of poor credit, poor monetary policy, and the currency crisis, and hasn’t loosened its grip ever since. This revived concerns about returning to the 1970s, when inflation remained close to 20% for several years, but it exploded to triple digits. It took another 30 years to bring it to less than 10%, and in 2001 there was a tragic economic crisis.

The central bank has promised to keep prices down. But under pressure from Prime Minister Erdogan, it will raise rates only as a last resort and will probably be too late. “If we can’t control inflation at the current level, we can lose control,” warns Kerimrota, a former finance minister and one of the founders of the opposition. Rota states that he has some confidence in the official data. “But, TUIK “Numbers,” he says, “this is a disaster.”


 

Lincoln

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Prices in Turkey are surging. But by how much?

Depending on whom you ask, inflation is either around 17% or 40%

EARLIER THIS Turkish President Recep Tayyip Erdogan announced in the summer that he has requested the fourth-appointed central bank governor in two years to begin cutting interest rates. Prime Minister Erdogan even provided the start date of the mitigation cycle. “We need to look at July and August for interest rates to start falling,” he said. He may have to wait longer. A week before the bank’s monetary policy meeting on July 14, the national statistical authorities (TUIK) Revealed that June’s inflation swelled to 17.5%, surpassing the most pessimistic forecasts. This is more than three times the central bank’s inflation target of 5% and close to the benchmark lending rate of 19%. In that case, the bank had no choice but to keep interest rates unchanged. It will almost certainly do the same in August.

Many Turks are convinced that the situation is even worse than the data suggest. According to a recent poll, 83% believe that true inflation is higher than official inflation. The Inflation Research Group, an independent group of scholars, believes it is in the 40% territory. The group’s own index relies on price data collected from online retailers and updated several times a day, said project director Veysel Ulusoy.The basket of the product is mainly TUIKHowever, items such as alcohol, education, and health for which the government can control prices are excluded. Ursoy argues that his price index is more in line with consumer and market sentiment.

Due to their trouble, he and his colleagues may be prosecuted. May TUIK Criminal accusations were filed against researchers for the metadata on their website not meeting legal standards. The group “misleads the public” and “damages confidence in official statistics,” the complaint said. That trust seems to be a long time ago.

Inflation is rising in most economies, supported by stimulating spending and fast-growing demand. But Turkey’s problems have a much deeper root. Double-digit inflation settled four years ago. This is the result of poor credit, poor monetary policy, and the currency crisis, and hasn’t loosened its grip ever since. This revived concerns about returning to the 1970s, when inflation remained close to 20% for several years, but it exploded to triple digits. It took another 30 years to bring it to less than 10%, and in 2001 there was a tragic economic crisis.

The central bank has promised to keep prices down. But under pressure from Prime Minister Erdogan, it will raise rates only as a last resort and will probably be too late. “If we can’t control inflation at the current level, we can lose control,” warns Kerimrota, a former finance minister and one of the founders of the opposition. Rota states that he has some confidence in the official data. “But, TUIK “Numbers,” he says, “this is a disaster.”


I think it's definitely more than 17%, that's for sure.
Tell me a country where prices have not gone up
Inflation always happens, it's about making sure that the rate of inflation is equal to rate of increase in people's wages. You want your population to become richer, not go poorer.
 

Homajon

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Lira’s Gains Vanish as Erdogan Renews Calls for Turkish Rate Cut

By Netty Idayu Ismail and Ben Bartenstein
August 5, 2021, 8:08 AM EDT
  • Currency unwinds half its advance since June over three days
  • Aberdeen sees central bank relenting to demands by year-end
Three days was all it took to wipe out about half the Turkish lira’s gains since June.
The decline was compounded by President Recep Tayyip Erdogan’s latest call for lower interest rates, about a week before the central bank’s next policy meeting. It sent the lira tumbling to as low as 8.5719 against the dollar, down more than 3% from a two-month high touched on Tuesday.

The rapid reversal underscores how fragile investor sentiment remains, where the risk of unwarranted monetary easing threatens to stoke inflation and bruise traders lured by the currency’s juicy yield. Options traders now see a 54% probability that the lira will weaken to 9.5 per dollar at the end of the year, which would eclipse the record low of 8.8008 reached in early June.

“It’s not today’s move, but that period of strength, which was the aberration,” said Tatha Ghose, a senior emerging-market economist at Commerzbank AG in London, who expects the currency to slide to 10 per dollar by year-end.

Changes at central bank and Turkey's interest-rate swings


Central Bank Governor Sahap Kavcioglu has so far looked past the president’s calls for looser policy and held benchmark rates unchanged at 19% since March. While that’s among the highest rates in the developing world, it’s done little to cool inflation which is running at the fastest pace in more than two years.

Now, with Erdogan’s ratings hurt by a limping economy and the government grappling with mounting criticism over its flailing response to Turkey’s worst wildfires in decades, the pressure to cut interest rates on Aug. 12 is growing.

For its part, the central bank has promised to keep policy rates above actual and forecast inflation. Data this week showed consumer prices accelerated to 18.95% in July, just shy of the the one-week repo rate, in principle reducing the likelihood of a summer interest-rate cut sought by the president.

“I don’t think the central bank will be in a position to cut rates next week. If anything at this stage, the central bank will be looking for credibility,” said Saed Abukarsh, chief investment officer at Ark Capital Management in Dubai, who expects the lira to trade within a range of 8.20 to 8.90 against the dollar for now.

Still, for investors and savers who have seen their returns practically wiped out by rampant price growth, Erdogan’s latest interjections have raised the prospect of more political meddling in monetary policy.

He fired three previous central bank governors, spurring an exodus of capital that has weighed heavily on the lira of the years.

‘Ongoing Weakness’
The central bank “has been far more disciplined than everybody feared, though it’s the inflation data that is handcuffing them,” said Edwin Gutierrez, the head of emerging-market sovereign debt at Aberdeen Asset Management in London, adding that it will probably relent to the president’s demands before year-end, even if not right away.

Last week, the central bank raised its year-end inflation forecast, but projected a significant drop in price growth in the final quarter that could open a window for the interest-rate cut later in the year.

The currency is down more than 12% against the dollar since December, the worst performance in emerging markets after Argentine’s peso.

“The orthodox policy move for the central bank in a period of rising inflation would be to raise rates,” said Todd Schubert, head of fixed-income research at Bank of Singapore Ltd. “Unfortunately, this hasn’t always occurred in Turkey, with the resulting and probably expected outcome of ongoing weakness in the lira.”

— With assistance by Selcuk Gokoluk

 

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