The world economy is experiencing unprecedented inflation so far this century. Almost all countries are facing price increases that reach historical highs in Europe and the United States. But not everyone has received the blow in the same way. Among them, there is one that is suffering from the phenomenon in an alarming way: Turkey. Although the country is exposed to the same forces that affect other countries, the unorthodox economic policies of President Recep Tayyip Erdogan have increased the crisis.
Turkey is now facing rampant inflation in which its currency has lost more than 20% of its value since the beginning of the year.
The data. They are hard to believe. Turkey’s annual rate of inflation reached almost 80% in June, the highest in 24 years. Think that in Spain it is close to 10% and it already means chaos for the average family. Consumer prices there increased by 78.6% compared to 2021, driven by the increase in the cost of food (+100%), transport (+123%) and drinks (+93.93%), according to data from the Turkish Statistical Institute. The monthly increase is an unusual 4.95%.
If they already seem disastrous figures to us, the country’s economists still believe that the real rate of inflation is almost double the official government figure due to recent increases in oil and gas prices.
How have you got here? The Turkish lira has been plummeting since the European debt crisis in 2012. To stem its decline, in 2018 Erdoğan launched what he calls a “new economic model”: ignoring rising inflation and cutting interest rates to drive economic growth. A few months ago he told Turkey’s central bank to start cutting interest rates as prices rose, instead of increasing them.
The country goes against the current. At a time when the world’s central banks are raising the cost of borrowing to reduce demand and thus control inflation, Turkey is doing just the opposite: interest rates have been held. Erdogan argues that this will reduce inflation and boost production and exports and blames foreign interference for his country’s economic problems.
the price to pay. The result of all these maneuvers is the plummeting of the lira and an abysmal loss of purchasing power for the average Turk. Its currency became the worst emerging currency in 2021, when its price fell to $0.107, a decline of more than 20% in just one year. In order for households not to be hit so hard, the government has even had to implement tax cuts on basic goods and adjust electricity prices.
wages go up. And the star measure, of course. He announced a second increase in the minimum wage now that Turks are struggling with an impossible cost of living. The monthly net minimum wage will increase by 29% to 5,500 liras (313.91 euros). And 50.5% already did so in January. It should be noted at this point that more than 40% of all workers in Turkey earn the minimum wage, according to the country’s Social Security Institution.
It should also be remembered that Erdogan is risking re-election in the next elections that will take place next year. However, analysts warn that the increase in the minimum wage could have a domino effect on wages in general and make inflation even worse. The good news is that the tourist season this summer could revive its economy a bit. Although the future looks very black.
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