One of the dates that can be considered a turning point for the Turkish economy is September 2021. The date when we started to cut interest rates on the grounds of “Nas”, the section of the Koran on interest rates.
The date when we made the economy, which had always had its problems but was doing well, more difficult for a large part of the citizens… The date when we took the decision that would lead to the escalation of prices and pave the way for the unprecedented increase in the cost of living…
Of course, they did not set out with the idea of “Let us take this step so that the citizens will be miserable”; but the result is obvious, so it was a mistake.
Here, I would like to compare the 27 months before and the 27 months after, this time on three indicators, taking August 2021 as a milestone, one month before September 2021.
Three indicators and overall price increase
Three key indicators: the dollar exchange rate and the price of gasoline and diesel.
Let’s first look at the data on the general price increase in each of the 27-month periods.
In the 27 months before August 2021, that is, between May 2019 and August 2021, consumer prices increased by 36 percent. You know, now we are trying to keep this year’s increase at 65 percent and to reduce the 2024 increase to 36 percent; In the 27 months before the interest rate cut, there was an increase of 36 percent. In 27 months!
The consumer price increase in the 27 months after August 2021, i.e. between September 2021 and November 2023, is 221 percent. Price increase from 36 to 221… A great climb, a great story of success!
If we had not caused the currency to skyrocket by lowering interest rates and the dollar had increased by 40 percent, the same amount as in the 27 months before August 2021, it would have been TRY 11.89 on average in November. Let’s round it up, it was TRY 12.
The dollar averaged TRY 28.59 in November.
The dollar, which increased by 40 percent before the turning point, increased by 237 percent after that milestone.
We know why this happened.
But what is the cost of this, and more importantly, who has paid and continues to pay this cost?
What about gasoline and diesel?
The prices of gasoline and diesel vary according to the prices in international markets. In Turkey, they are based on the prices on the commodity exchange in Genoa, Italy. Although the price on this exchange does not change much, the retail price in our country can fluctuate rapidly from time to time, often increasing, depending on the changes in the exchange rate. There are other factors affecting the retail price, such as profit margins and taxes, but the main determinant is the exchange rate.
First of all, let’s say that if the exchange rate had remained at 40 percent after the turning point, as it was before the turning point, we would have paid TRY 13 for gasoline, not TRY 35, and TRY 15 for diesel, not TRY 38, when filling the tanks of our vehicles in November.
The rise in gasoline and diesel prices to these levels (and they were even higher for a while) cannot be explained by international markets, oil prices or other factors.
We caused the foreign exchange rate to rise and gasoline and diesel prices went up, that’s all.
In the last 27 months, gasoline has increased by 15 percent and diesel by 44 percent on the Genoa stock exchange. In our country, the increase in retail prices is 289 percent for gasoline and 385 percent for diesel.
Add a reasonable exchange rate increase to the increase in the stock market price; we made a calculation based on a 40 percent increase in the dollar, and the result would be a 62 percent increase in gasoline to TRY 13 and a 102 percent increase in diesel to TRY 15. Dreams are one thing, reality is another…