How will the AKP lower inflation?

The Central Bank raised the policy rate by 5 points at once to 50 percent, citing the fight against inflation. While it took this decision under the pretext of fighting inflation, the real reason for the rate hike was the volatility seen in exchange rates since the beginning of March. 

Did the expected happen? The two-day effect was that the rise in the dollar stopped; the dollar, which was 32.37 TL on Wednesday, fell by 35 kuruş on Friday and reached 32.02 liras. We did not observe a sharp decline; we will see in the coming week whether the decline will continue and how long the rise will be curbed. But we can say with certainty that the Central Bank made the Turkish people pay the price for not raising rates last month and passing, by selling 20 billion dollars in foreign exchange reserves.

Now let's get to the heart of the matter... All of this is for inflation to fall... The problem that market-oriented economists, the Central Bank, and Finance Minister Mehmet Şimşek do not understand, do not want to understand, or do not state because they fear being scolded and dismissed by the President if they tell the truth is this:

Interest rate policies alone are not enough to fight chronic and high-level inflation like in Turkey. No power can lower inflation when there are budget and fiscal policies that have massive deficits, make massive interest payments, enrich a handful of cronies with a tender system where corruption gushes from every side, and where ostentatious reign expenditures grow like an avalanche every day. And no mortal working in the state, whether a bureaucrat, a technocrat, or a submissive servant, can ask AKP Chairman and President Erdoğan to prepare a proper budget. For this very reason, even the IMF does not come to Turkey.

Following the latest interest rate hike decision, some economists (including names I highly value and respect) applauded the Central Bank management after this decision, emphasizing that serious fiscal policies should also be followed. Let's say they became hopeful. But when you include inflation in the equation, this interest rate hike by the Central Bank does not change the fact that we are still in negative interest rates and will remain in negative interest rates for the next 12 months. These friends of ours have reached the conclusion that “TÜİK is now measuring inflation correctly” by looking at TÜİK's inflation measurements for the last two months. I think they are very optimistic. 

The current 12-month inflation is not 67 percent as TÜİK claims, but at the 122 percent level measured by ENAG, which is composed of independent economists. Everyone who goes to the bazaar and market finds ENAG inflation realistic. No matter what interest rate policy the Central Bank implements, with a budget policy as summarized above, inflation, which is 122 percent, will not fall to 50 percent at the end of the next 12 months; on the contrary, it will reach 130 percent. We haven't even mentioned the 900 billion TL loss from 2023 caused by KKM, which we haven't accounted for, which is not seen in the budget but stands as a heavy burden on the back of the Central Bank, and the inflationary effect of this loss... The KKM burden has not ended yet, and I fear it will continue in 2024 and 2025 as well.

The Central Bank will continue with monetary tightening in addition to interest rate hikes in the name of fighting inflation. It will not be able to lower inflation, but it will lead to stagnation in the market and an increase in unemployment. Because Finance Minister Mehmet Şimşek and the Central Bank are still obsessed with the demand of the wage-earning segment, retirees, and low-income earners, whose real incomes have been falling for years, which has been declining in real terms every year in terms of fighting inflation. They believe that if they kill these segments, inflation will fall. Okay, they believe this, but I will ask a question to the economist friends who find the Central Bank's decision appropriate in the name of fighting inflation, who are caught in the optimism that inflation will fall, and who say for this reason that “TÜİK is no longer manipulating the figures while measuring inflation.” 

THEY STOLE 66 PERCENT FROM THE MINIMUM WAGE EARNER'S SALARY AND 80 PERCENT FROM THE RETIREE'S SALARY

For success in the fight against inflation, a social consensus is also required. Let's assume that TÜİK has stopped manipulating the figures while measuring inflation. It cannot wash its hands and clear itself like that. It mediated the theft of the income of a large segment of society through incorrect inflation measurement. TÜİK must first correct its inflation calculations for the last 4 years. It must explain how much was stolen from the incomes of workers, retirees, and civil servants. Only then will we seek consensus on which segments of society will tighten their belts regarding the fight against inflation and fight inflation.

Let's give an example to make the issue clearer. ENAG has been measuring inflation since 2020. Let's compare the 4-year inflation measurements of the two institutions. (Percent)

YEARS ENAG TÜİK 

2020     36.7     14.6

2021     82.8     36.1

2022    137.5    64.3

2023    127.2   64.8

In the last 4 years, according to TÜİK, inflation is 322 percent, and according to ENAG, it is 1250 percent. (For total inflation, you do not add, you multiply) In January 2020, the minimum wage was 2325 TL. At the end of 2023, the minimum wage should have been 9819 TL according to TÜİK inflation. Amid slogans of "we did not let the worker be crushed," they made it 11,402 TL. (2325x1.146x1.361x1.643x1.648= 9819) For 2024, the revaluation rate was 58.46 percent. The minimum wage that should have been according to TÜİK for 2024 was 18 thousand 67 TL. It remained at 17 thousand liras.

If we do the same calculation with ENAG inflation, (2325x1.367x1.828x2.375x2.272 = 31.391) the 11 thousand 402 lira minimum wage at the end of 2023 should have been 31 thousand 391 TL, and for 2024, it should have been increased by the revaluation rate to 49 thousand 743 TL. Before the AKP government, the lowest pension was 40 percent above the minimum wage. Let's give up on that. The lowest pension should also be equalized with the 49 thousand 743 lira minimum wage.  

“Saying 'TÜİK is now measuring inflation correctly, so let's reach a social consensus in the fight against inflation and tighten our belts together' means being a partner in the theft committed. In just the last four years, 66 percent of the minimum wage was taken from the worker and distributed to employers who employ workers and everyone who uses loans with negative real interest rates. 80 percent of the retiree's salary was stolen and transferred to cronies who receive tenders from the state budget, to refugees whose numbers exceed 10 million, and to those who take loans with negative real interest rates. 

If we are going to fight inflation, you will first return the stolen money of the worker, retiree, and civil servant, and then you will tighten your belts. Which segments of society will tighten their belts? Like the saying “The dates you eat in the evening will irritate your stomach in the morning,” whichever segments caused the consumption demand to explode, from which segments of society to which segments income and wealth transfer was made in the last four years, who did not pay enough taxes despite high earnings, and who got rich through black money in a country on the gray list, you will impose the sacrifice on those segments. If you can't do this, you will leave the government. I think the most effective way for the AKP to lower inflation is to leave. The voter is the one who will decide this. The upcoming elections are not just a local election. It is an election to stand up both to protect the Republic and to fight poverty, and to share the country's resources fairly.