Turkey’s official inflation rate spiralled to nearly 70 percent in April (hyperinflation is 50% increase in prices per month) - unconventional economic policies are reasons for the economic turmoil. The consumer price index rose by 69.97 percent year-on-year in April compared with 61.14 percent in March, the national statistics agency said on Thursday.
Erdogan insists that sharp cuts in interest rates are needed to bring down soaring consumer prices, flying in the face of economic orthodoxy. The collapse of the lira has pushed up the cost of energy imports and foreign investors are now turning away from the once-promising emerging market.
Source: https://www.dailysabah.com
Russia’s invasion of Ukraine and the coronavirus pandemic have exacerbated the energy price spikes and production bottlenecks. Analysts say Turkey’s annual inflation rate, the highest since Erdogan’s ruling AK Party stormed to power in 2002, is largely linked to his unconventional economic thinking. Erdogan has put pressure on the nominally independent central bank to start slashing interest rates. In April, the bank kept its benchmark interest rate steady for the fourth consecutive month, bowing to pressure despite high inflation.
The biggest price increases in April were in the transport sector, standing at 105.9 percent, while the prices of food and non-alcoholic drinks jumped 89.1 percent.
The Turkish currency has lost 44 percent of its value against the dollar last year and more than 11 percent since the start of January.
Erdogan’s government has responded by using state banks to buy up liras in a bid to cut the currency’s losses. There is also speculation that the central bank sells dollars (USD2.5-3 bil) through back channels to stem the lira’s slide.
Erdogan, who faces a crucial presidential vote next year, has also shifted policy to mend broken alliances with cash-rich Gulf states to draw financial support.
What can we learn?
To stem inflation, orthodox, boring economics is the only way – and by the way, raising interest rates is not un-Islamic! How can one say interest rate is riba and yet have a modern economy operating in a hyper-inflationary environment? If you are so inclined to be on a Islamic footing, please remove all vestiges of “western” economic thinking and use terminology that befits Islamic thought. This dual economy running parallel of each other – with hyperinflation in its midst is actually un-Islamic from my point of view. Have one or the other! Erdogan wants both and makes a mess of both.
The other is not to have politicians or religious mullahs pronouncing economic diktats – no sane central banker or economist can survive.
A once thriving, modern economy is now becoming the “sick” man of Europe – a label it had before WW1. May we learn to distance ourselves from narrow, blinkered views!
Reference:
Turkey’s inflation rate soars to almost 70 percent, Aljazeera News, 5 May 2022
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