Turkey’s inflation dynamics worst in 30 years – top economist

Inflation dynamics in Turkey are “the worst I’ve ever seen,” reported economist Cevdet Akçay, who said he has been studying price movements in the country for 30 years.

“We have seen higher levels in inflation, but we have not seen such a bad level in terms of dynamics,” Akçay, who has worked as a consultant to the Treasury and Finance Ministry, public institutions and major financial institutions, said in an interview with the Dünya newspaper published on Wednesday.

Turkey’s consumer price inflation rate surged to 70 percent last month, the highest level since a financial crisis two decades ago. Producer price inflation accelerated to 122 percent. Inflation in Turkey is the highest in emerging markets and industrialised economies.

Akçay said he was not so much concerned about how high inflation would go, but where it would end up when it eventually slowed. It would be a disaster if inflation in Turkey came down and then got stuck in the 30s, he said.

There was a so-called “relative price chaos” in the country when comparing the price of goods such as televisions with refrigerators or cars with one-week holidays, Akçay said.

“These relative prices are all very volatile. In order to reduce inflation, this relative price chaos must first subside,” he said.

It was not a normal situation for a country when people started buying second-hand cars as an investment rather than putting their cash in bank deposits, Akçay said.

“People make purchases in this environment, keeping the demand alive. This is not a good thing either,” he said. “For example, the car became an investment vehicle. Even for this reason, the rulers of the country must say something is wrong.”

The government has said it will increase purchasing power to help people deal with inflation, but the risk was that purchasing power would be killed off completely, Akçay said.

The central bank, which cut interest rates late last year, does not seem to be worried about inflation, Akçay said. But people need confidence in the institution and government that price increases will slow, he said.

“They (the central bank) don't panic about inflation, they panic about other things. I'm sure management is panicking about the exchange rate. But it is very strange that they do not panic about inflation. Because this inflation disrupts all asset prices and leads to bad balances,” Akçay said.

The central bank and government say they expect inflation to start slowing after May and the decline to become more pronounced by the end of the year. They lay the blame for high price increases largely on global factors such as energy prices and supply dispruptions, as well as hoarders and price manipulators that they say will be punished. President Recep Tayyip Erdoğan has ruled out interest rate hikes.

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