Uğur Gürses: Will the younger generation settle for devastating inflation?

Turkey has returned to an annual inflation rate of 50 percent after almost 20 years. The annual consumer inflation rate of 48.7 percent in January is the first after 52.7 percent in April 2002. If there is a monthly increase of 1.8 percent in February, which is a strong possibility; will exceed 50 percent annually.

Inflation means the increase in the prices of goods and services, that is, a continuous increase in the general level of prices. The high cost of living means that households cannot access, with their current income, the ever-increasing prices of basic goods and services on the same scale as they used to buy. It means that current income is not enough for current buying patterns in the face of inflation.

Low economic growth, the fact that this growth does not increase income in all sectors and segments, reduces the disposable income of households under high inflation.

In Turkey, economic policy mistakes and deliberate policy choices have brought about the following: An interest rate that is persistently kept below inflation, an exploding exchange rate, exploding raw material and energy prices, costs exceeding 100 percent, and its cost to households is high. consumer inflation.

All developed and developing countries were affected by the rising energy, raw material and logistics costs after the pandemic on a global scale. However, in addition to this background, the wrong policies and mismanagement followed at home increased the foreign exchange we needed while purchasing raw materials and energy, which became more expensive abroad, by nearly 60 percent in a very short time.

subsidies from the budget; We would have talked about the fact that inflation was much higher than 50 percent, even if the SCT in fuel was zero and the losses in natural gas amounting to 3-4 billion dollars were not covered from the budget. In addition, Turkey was not the only country to do this.

Wrong policies combined with bad management brought inflation back to the level of twenty years ago.

As an excuse for this photo, politicians took refuge in the excuse that “inflation is exploding all over the world” and saying that “inflation has increased 7 times” in developed countries, which is 1-2 percent, and to give their own consent to an inflation based on 50 percent. They engaged in acrobatics for it.

Although the older generations have a certain inertia due to their past experiences with the phenomenon of inflation, street interviews and surveys show that the unhappiness of the younger population has increased.

In addition, it is certainly not about how much the household inflation has increased, but how to manage the increasing cost of living in the household budget.

Inflation and price stability

Developed countries do not even define inflation as low inflation in their economy management. Because this definition is vague. For example, the “single-digit inflation” target was always included in the election manifestos of the government in Turkey. Over time, it was seen to be 8-9 percent. However, this could be fixed with the abundant capital flow to the country.

So what is price stability? The Central Bank defines it as:

“Price stability, on the other hand, refers to a low and stable inflation rate, which is oriented towards growth and employment, which are the long-term main objectives of monetary policy, so that it will not be effective in the decision-making processes of economic units. The main purpose of the Central Bank in Turkey is to ensure price stability.”

“A low and stable inflation rate that will not be effective in the decision-making processes of economic units” is a rate of 1-2 percent. Today, the inflation target of all developed countries is 2 percent.

Until the pandemic, these countries were able to maintain an inflation path of 2 percent for a long time. After the pandemic, they did not intervene in the rising inflation by increasing interest rates by pointing out the bottlenecks in the supply channel.

However, in addition to these developments in Turkey, the results of the preference to leave the TL in free fall were added. This effect resulted in a relatively larger shock wave.

What happened to prices in the US and EU?

The demagogy of “increased 5 times”, “increased 7 times” is as follows; There is an increase in inflation, especially from energy expenditures.

In the US, annual average inflation for the last 30 years until 2020, when the pandemic began, was 2.4%. Where it came from is 7.5 percent in its most recent form.

In Germany, the ‘flagship’ of the EU, after the East-West merger, there was also an increase in inflation brought about by the unification; In the 18-year period until the pandemic, the average inflation was 1.7 percent. It has now started to decline from its peak of 5.3 percent.

As in the rise from 2.4 percent to 7.5 percent, the politicians describe the rates as “3 times, 6 times”, and paint a picture in the minds of the citizens as if the prices have increased 3-5 times.

However, in Germany, for example, consumer prices indexed as 100 in 2015 were 105 in January 2020, which is considered the beginning of the pandemic, while it was at 111.5 in January 2022 ‘with inflation exploded’. This tells us that there was a cumulative consumer price increase of only 11.5 percent in 7 years.

But alone in Turkey; We were exposed to 13.5 percent inflation in December, and an additional 11.1 percent inflation in January.

Aren’t the politicians, who say, “My relatives living in France, filled the bags for 750 euros, which they filled for 150 euros”, may not know that the food price increase in France in the 18 years until the pandemic increased to 1.4 percent annually and now to 1.8 percent?

by Uğur Gürses neoskola.com’It is an excerpt from an article published in…

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