Home and car sales have perked up and shopping malls and entertainment venues appear quite lively in Turkey, even as an unyielding inflation and rife unemployment continue to haunt the country’s ailing economy. What to make of this seemingly contradictory trend? Are some Turks throwing barbeques on the flames of inflation?

Soaring prices remain the main problem of the Turkish economy, which was already in dire straits when the COVID-19 pandemic hit early last year. Having climbed to 17.5% in June, Turkey’s annual consumer inflation is likely to easily reach 20% in the coming months, given the much higher increases in producer prices — 43% in industry, 30% in services and 22% in the agricultural sector. The prevailing view among observers is that the big gap between consumer and producer inflation will soon translate into fresh price hikes for consumers.

Fighting inflation requires monetary tightening. In other words, Turkey’s economic management ought to discourage consumption and encourage saving, and the central bank needs to hike its current 19% policy rate to make the embattled Turkish lira more appealing to domestic depositors and foreign investors alike in the face of rising inflation. Tightening credit taps would be another inevitable measure to curb the domestic consumption appetite.

Turkey’s central bank, however, has come to function as a department of the presidential office, and President Recep Tayyip Erdogan’s aversion to hiking interest rates and cooling the economy have dampened hopes that inflation would be reined in among both domestic and foreign actors.

Read more: https://www.al-monitor.com/originals/2021/07/wealthy-turks-drive-consumption-despite-soaring-inflation#ixzz72CSbUAu9

Written by Mustafa Sönmez