BY SEBNEM TURHAN
The annual inflation exceeded expectations and reached 36.08% in December. However, it may hover around 40-50%, according to the economy world. Will it transform into hyperinflation, or can the increase be limited by the support of steps to be taken? We asked the economists…
The Consumer Price Index (CPI) can increase by 8-10% with new price increases while the surge in electricity prices will alone have a 2.5-point effect on the monthly CPI, according to daily DUNYA columnist and TOBB University of Economics and Technology Associate Professor Atilim Murat. He also says the annual inflation may reach 40-50%. “If a new shock in foreign exchange (FX) rates don’t happen, inflation may gradually decline as of the second quarter (Q2), and we may end the year at 30%. I don’t think that there will be hyperinflation,” Murat noted.
Regarding the measures, Atilim Murat told that the interest rate limit of 17% for the FX-protected TRY deposit accounts may be removed and the inflation-protected new products may enter into use.
Professor Erhan Aslanoglu, Vice-Rector of Piri Reis University, also says the headline CPI is most likely to reach around 40-45%, and beyond this figure will depend on FX rates. Touching on the fact that the past experiences show that hyperinflation in Turkey isn’t that easy, Aslanoglu added: “A comprehensive disinflation program including the monetary policy should be implemented.”
The country won’t experience hyperinflation as long as the budget discipline isn’t completely lost and it isn’t financed by issuing money, according to daily DUNYA columnist Tugrul Belli. “However, we’ll continue to struggle with high inflation if the monetary policy is implemented in the same manner,” Belli added.
Meanwhile, Is Yatirim, the investment bank arm of Isbank, estimates the inflation to exceed 40% in the first months of the year with the adverse impact of record price hikes, impact lag of the FX rate shock, and deteriorations in estimations, according to Serhat Gurleyen, Research Director of Is Yatirim. “If ‘a U-turn’ isn’t made from the existing over-expansionary monetary and revenues policies, there is no reason for inflation to naturally decrease. Turkey has entered the FX-inflation-price spiral and it won’t be easy to get out form this,” Gurleyen said.
The surge in producer prices points out that the increase will continue in consumer prices with the impact of transitivity, according to Seltem Iyigun, Turkey Economist of Coface. She also says the course of the real interest rate and FX rates will continue to be determinant. “Under current conditions, macroprudential implementations may be brought to agenda instead of the interest rate tool,” Iyigun added.
On the other hand, there are two options, according to Bilkent Unversity lecturer Burcu Aydin Ozudogru. “The most optimistic but less possible option is that the government should accept by evaluating the results of the pursued economic policies that it can’t decrease inflation with the low-interest rate. It should make a decision to implement the established economy policies,” Ozudogru said. She also emphasized that regulations should be implemented to strengthen the corporate infrastructure which gives confidence to people, companies, and investors in terms of sustainability of the new policies. “The second and possible option is the insistence on implementing the existing policies. But it will further increase Turkey’s risk premium against tightening monetary policy at the international arena, further raise inflation by triggering TRY’s devaluation, and pave the way for people to become poor and the capital of companies to deteriorate.” Ozdogru added.