Rising bills and services threaten to exacerbate Turkey’s inflation crisis | Economy

Rising global energy prices and the historic depreciation of the Turkish lira have forced the Turkish government and regulators to enact significant increases in electricity and gas bills, which in turn will exacerbate the current inflationary crisis in the Eurasian country, according to various analyses. Despite this, Recep Tayyip Erdogan’s government says it will continue its “unorthodox” economic prescriptions, adding pressure to a very weak Turkish currency at a time when the rate hike planned by the US Federal Reserve could put a serious pressure on emerging countries. markets.

On New Year’s Day, Turks woke up to bill hikes. The Energy Market Regulatory Authority has published the new electricity prices per kilowatt hour, which represent a 125% increase compared to 2021, even if the cost will only be 50% for households consuming less (less than 150 kWh). The hydrocarbon import and trading company, BOTAS, also announced a 25% increase in the natural gas bill for domestic use and 50% for industrial use (except for power generation plants, where the increase will remain at 15%). This public company has been in deficit for three years and will have to face the payment of debts worth 2 billion dollars in the coming months, part of which is due to the Russian Gazprom, from which it buys half of the gas it imports. . According to Bloomberg, BOTAS has only managed to recover loans for less than a fifth of the value of its debts and the government is looking for methods to cover the difference.

January 1 also announced the umpteenth fuel increase for vehicles in recent months, with which filling the tank has become between 88 and 128% more expensive over the past year, depending on whether it is whether unleaded petrol, diesel, diesel or LPG. The executive also decreed increases in the price of motorway tolls, bridges and tunnels of around 25%, since many of these infrastructures are managed by construction consortia – some of them with foreign participation – and the government must compensate concessionaires if they fail to achieve certain benefits, which are usually agreed in euros or other hard currencies. The effect in Istanbul has been a noticeable reduction in traffic and an increase in the use of public transport.

The government has also increased special taxes on tobacco and alcohol by 47%, prompting protests from small businesses dedicated to the sale of alcoholic beverages, which are finding it increasingly difficult to survive. Since the Islamist Erdogan came to power in 2002, taxes and royalties on alcohol have multiplied. For example a 70 cl bottle. from raki, the country’s typical aniseed liqueur went from 8 to 249 lire (5 to 16 euros in exchange).

According to figures from the Official Institute of Statistics (TÜIK), Turkey ended 2021 with consumer inflation of 36.08%, the highest recorded since October 2002, a month before the Islamist party AKP won the elections that catapulted Erdogan to power. By heading, the highest price increases were recorded in energy (42.9%) and food (43.8%).

And these new increases in bills and services threaten to perpetuate or even exacerbate price increases in the months to come. “Since the beginning of the year, we have seen several significant increases in the prices of electricity, natural gas, tobacco and alcoholic beverages, which will add further pressure on inflation in January. It is important to note that rising inflation distorts consumer buying patterns. To anticipate higher prices, consumers tend to shop earlier and this creates a feedback that pushes inflation even higher,” says a JP Morgan report. The investment bank has revised its inflation forecast for Turkey upwards and estimates that it will continue to rise and peak in May (55%), from where it will hardly fall until December, for close the year at 35%. For its part, Goldman Sachs estimates that inflation in Turkey will exceed 40% during the first quarter of 2022 and will not fall below this figure for most of the year.

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However, these calculations are made on the basis of figures from TÜIK, whose calculations are widely criticized in the country. The ENAG group, made up of academics and independent economists, argues that consumer prices increased by 82.81% in 2021, a figure in line with producer price inflation, which the TÜIK itself even calculates to 79.89% per annum.

Turkish companies producing for the domestic market are, in fact, between a rock and a hard place: on the one hand, affected by a record increase in the price of inputs needed for production and, on the other hand, threatened by the government with million-dollar fines if prices rise too high. Since Erdogan has effectively prohibited the Central Bank from raising interest rates as a means of strengthening the pound and curbing inflation, Turkey is resorting to measures of various kinds such as the creation of bank deposits indexed to the dollar, the obligation for exporters to convert 25% of their foreign currency earnings into liras or the possibility of limiting exports of food products (which represent around 15% of Turkey’s exports), according to a member of the party in power quoted by the media Duvar. This partly contradicts the New Economic Model that President Erdogan announced last month, the aim of which is to boost production and exports to reduce the current account deficit and, with it, the dependence on external financing.

“We set aside orthodox politics. Now there will be heterodox politics. And at the same time we will continue to be eclectic”, explained on January 5 the new Turkish Minister of Economy, Nureddin Nebati, a political scientist by training. With this, he clarified that there will be no increase in the benchmark interest rate, despite the fact that in a recent entry on his blog, analysts from the International Monetary Fund warn that the policy tightening monetary policy of the US Federal Reserve “could trigger capital outflows and currency depreciations in emerging markets”.

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