By Samantha Bader, Co-President
While people in Canada gripe about the rising costs of gas and food, inflation in Turkey has shot up to such a level that people may soon be starving in the streets. In October, inflation in Turkey rose at least 20%, the Lira crashed, and there is no sign of better days on the horizon.
Rising consumer prices are truly a global problem right now. As economies try to bounce back from the COVID-19 pandemic, inflation has become an issue. However, some countries are experiencing this more harshly than others. Turkey is one such country. The official government said that inflation rose 20% this past October, but an independent research group put the true increase in inflation closer to 50%. In contrast, US inflation is up 6% and EU inflation is 4%. These are both near-record high levels, but it pales in comparison to the Turkish crisis.
The Turkish Lira crashed to 13.44 to the dollar this past week. Previously, anything higher than 11 Lira to the dollar was considered unfathomable. Tim Ash, a market strategist at Bluebay Asset Management said, “Insane where the lira is, but it’s a reflection of the insane monetary policy settings Turkey is currently operating under.”
The monetary policies which Ash is referring to are those that have been implemented by Turkish President Erdogan. In direct contrast to common economic logic, he has continued to lower interest rates as inflation spirals. Normally, when inflation begins to rise, interest rates are risen to curb soaring prices. However, Erdogan has gone as far as calling interest rates the ‘enemy’ and seems determined to maintain the course. Worsening the issue is the lack of independence held by the central bank. Erdogan has replaced the chief of the central bank three times in two years, and all but demanded that they follow his economic policies at risk of losing their jobs. The central bank cut interest rates yet again last week.
Erdogan further argues that the low price of the Lira makes Turkish exports more valuable. Unfortunately for Erdogan, the Turkish economy relies heavily on imported goods and foriegn assistance. With these raw materials becoming more expensive, the ease of exporting Turkish goods will do little to solve the crisis.
The Lira has lost 25% of its value since last year. Turkish assets are being dumped by investors across the world, and Turkish citizens are converting their savings into other currencies or precious metals. Prices of everyday goods have risen so sharply that people are now unable to afford their most basic necessities. A market owner with two children has said that she now doesn’t eat lunch in order to be able to feed her children.
“I had never experienced such a deplorable life. I go to sleep, I wake up and the prices have gone up. I bought a 5-litre can of (cooking) oil, it was 40 lira. I went back, it was 80 lira,” Kadriye Dogru said.
It remains to be seen how bad the situation in Turkey will become. If a more prudent monetary policy was imposed, the situation would likely improve slightly, but in the current political structure of Turkey, that seems unlikely to happen. In the meantime, Erdogan’s citizens will continue to starve.
Photo by Meg Jerrard on Unsplash