Turkey’s Inflation Problem
Imagine living in a country where the annual price increase of food is 30% a year. Many in the west are not very familiar with hyperinflation or a currency collapse. But when looking at a historical or present-day worldview, it’s actually not that rare.
On the other side of the globe, the Hurriyet Daily News of Turkey, reported that President Erdogan ordered Agricultural Credit Cooperatives to open:
…1,000 new markets across the country to provide “suitable” prices for consumer goods.
Not only did the government order the opening of stores, but announced the size of the stores at “500 square meters each.” Construction is expected to start soon to provide “cheap and high-quality goods,” said their President. And that:
“Such a move will help “balance the market.”
If it’s difficult to believe that a President could instruct business owners to open stores, it gets stranger:
Turkey sees annual food inflation of nearly 30 percent… Fresh fruit and vegetable prices increased 40 percent in August from the same month of 2020.
While prices increase for countless reasons, it’s a good question to ask: What, if anything, has the government or central bank done to cause these price increases?
The article provides further clues as to what might be afoot:
In early 2019, the government opened its own markets to sell cheap vegetables and fruits directly, cutting out retailers it accused at the time of jacking up prices.
It’s possible the government’s intervention created problems with price signals and the production process, which now manifests through higher prices and/or supply shortages, unless one believes governments can effectively sell fresh fruit and vegetables at more effective and lower costs to the public than the free market.
Even today, the Turkish government maintains a watchful eye:
Recently authorities have tightened inspections over alleged excessive price increases at supermarkets and marketplaces.
As for central bank intervention, less than two weeks ago Reuters announced:
Turkey's central bank unexpectedly cut its policy rate by 100 basis points to 18% on Thursday, delivering stimulus long sought by President Tayyip Erdogan despite high inflation, and sending the lira to near a record low.
Yet under the current mainstream narrative, hiking interest rates is what must be done to fight price increases. Despite high food prices in Turkey, its Central Bank explains the rationale for cutting rates by 1%:
The central bank's policy committee said a rate cut was needed because of the lower core price measures - which strip out food and some other goods - as well as shocks to supply in the wake of pandemic measures.
Meaning inflation was a little low per their measure (which excludes food). Even more surprisingly, is their belief that:
The recent rises in inflation "are due to transitory factors."
If you look at other countries around the world, government and monetary policies tend to mimic each other.
The lessons from other countries become invaluable. In Turkey, the government competes in the marketplace, opening (and possibly closing) stores at will. They also monitor “excessive price increases” in certain industries. The central bank currently holds rates at 18%, continues to offer stimulus, and claims inflation is transitory. After all this manipulation, the Turkish Lira continues to tumble on world markets and prices climb at a pace still incomprehensible to the west.
Putting it all together, Turkey’s national policies and actions of the State do not sound terribly different than what happens in America. Either economics work differently in Turkey and market distortions will never get that bad here. Or, we are being offered a glimpse into the future where the State controls every facet of the market, and the only thing certain becomes capital destruction.