M. Ahmet Karabay
While the world beats the drums of war, our biggest problem as a nation is the high cost of living in Turkey. The government, which has exacerbated inflation with unprecedented measures in world economic history, is now unable to control it. The July inflation announced by TÜİK (Turkish Statistical Institute) shows that stagflation is next.
The public’s agenda is the high cost of living. While different issues occasionally come to the fore, the economy has consistently been the top concern in recent years. When we add the 3.4% unemployment rate to the 64.6% cost of living increase, it’s clear that the economy, at 68%, is overwhelmingly the most pressing issue.
Last month, Asal Research conducted a study asking, “What is Turkey’s most important problem today?” Even if you disagree with the percentages, if you have any contact with others in society, you can observe how the high cost of living affects people, even if you’re not experiencing it yourself.
IT ALL STARTED WITH THOSE TWO WORDS
When Mehmet ÅžimÅŸek took office in June last year, saying, “Turkey has no choice but to return to a rational basis,” many economists tried to believe that the necessary actions would be taken.
The economy went off the rails, inflation skyrocketed, and the foreign exchange deficit reached unprecedented levels after the ‘One Man’ who had previously said, “Interest is the cause, inflation is the result,” and lowered interest rates from 18% to 8% despite the rising inflation risk and while the world was increasing rates. This same ‘One Man’ later tried to deceive the public every year by promising to reduce inflation to single digits.
JULY FIGURES DISRUPTED PLANS
Now, the figures that will overturn all the government’s plans regarding inflation are out in the open. TÜİK announced the inflation data for last month: in July, inflation was 3.23% compared to the previous month, 28.76% compared to December of the previous year, 61.78% compared to the same month of the previous year, and 65.93% based on 12-month averages.
Despite Minister of Treasury and Finance Mehmet ÅžimÅŸek’s claims of disinflation (transition from high to low inflation), the July figures do not support his assertions. Although he shared the figures by saying “annual inflation is falling,” the numbers do not corroborate his claims.
The monthly inflation, which had been around 3% since March, miraculously came out at 1.6% in June, a manipulation by TÜİK to give a few pennies less to those who would receive a pay raise in the second half of the year.
Our monthly inflation is higher than the annual inflation average in the European Union. According to the June data from the European Statistical Office (EuroStat), the annual average inflation was 2.6%.
To meet the inflation target, the remaining 5 months must average 1.4% monthly inflation. After the 38% increase in electricity last month and the natural gas increase this month, it is impossible for August inflation to stay below this figure. In the TÜİK index, natural gas has a 2.57% weight. Therefore, the 38% increase in natural gas will have a direct effect of 0.98 points on inflation. In other words, two-thirds of the 1.4% average inflation target is already covered by the natural gas increase alone.
THE ECONOMY COOLDOWN WILL RESULT IN UNEMPLOYMENT AND POVERTY FOR SOCIETY
Mehmet ÅžimÅŸek claims to be trying to stabilize the economy by only moving within the area assigned to him, using exchange rates and interest rates. However, Turkey’s problems are too deep to be solved by these two levers alone. Unless the causes of inflation, such as establishing justice in society, ensuring trust in institutions, reimplementing the principle of separation of powers, and instilling a sense of public savings to solve the obesity of the state, are addressed, the root causes of inflation will not be tackled.
On July 18, in my article titled “How Ready Are You for the Autumn Storm in the Economy?” I summarized the autumn picture as follows:
- The economy will have cooled down and demand will have lost its vitality.
- Producers will cut production and lay off workers as they cannot sell what they produce.
- Inflation, which will decline by 10+10% due to the base effect in July and August, will show strong resistance after autumn.
- The cost of suppressing the dollar will increase rapidly, and the exchange rate is likely to soar.
Yesterday, the hurricane that emerged in the Far East reached Turkey due to some concerns:
- The Istanbul Stock Exchange implemented automatic circuit breakers twice to prevent a crash.
- TÜİK’s unreliable inflation figures show that stagflation has begun.
According to ÅžimÅŸek, the high inflation in July is due to “temporary effects” and the decrease in inflation will become more pronounced in the upcoming period. ÅžimÅŸek, who largely acted as an economist during his previous tenure, is now making statements more like a politician.
For the four reasons I mentioned in my previous article, Turkey will not be able to reduce inflation and will enter a severe recession. This situation is called stagflation, a combination of the words “stagnation” and “inflation.” It describes an economic condition where there is both stagnation with severe problems and runaway inflation. This risk, which was expected to occur from autumn, now seems to have been brought forward.
A key figure who appears during critical periods and plays a crucial role is Cavit ÇaÄŸlar, a politician and businessman. In an important interview with Cansu Çamlıbel about his book “A Stormy Life Story,” Cavit ÇaÄŸlar stated that “If they cannot control this inflation, there will be an early election within a year.” He also predicts that this will happen before the summer of 2025.
Global and regional chaos is at our doorstep. The ‘One Man’ and his cronies are focused solely on maintaining power and enriching themselves. Turkey cannot sustain this structure any longer. We will all see this very soon. If the opposition were not under the influence of the government, Turkey’s future could be very bright. However, looking at the current situation, it is not easy to be optimistic.
