Prof. Durusoy on inflation: “Fiscal tightening must be implemented”

Evaluating the inflation figures announced by the Turkish Statistical Institute (TÜİK) as 4.53 percent monthly and 67.07 percent annually in February, Prof. Dr. Serap Durusoy stated, “What needs to be done is to implement fiscal tightening in addition to monetary tightening, and not to compromise on this.”

Prof. Durusoy’s assessments for 12punto are as follows:

“Yesterday, we received the February inflation data. Before the figures were announced, Treasury and Finance Minister Mr. Şimşek stated in a TV program he attended that they have put forward a program in line with international norms, that the essence of the program is to bring inflation down to single digits, and that although we are currently far from price stability, this is the goal.

Following the speech, TÜİK announced February inflation as 4.53 percent monthly and 67.07 percent annually. Although the ENAG data for monthly inflation remained behind TÜİK at 4.32 percent, it was stated that as of February, out of the 142 basic goods headings covered by the index in TÜİK’s calculation, 12 showed a decrease, 125 showed an increase, and 6 remained unchanged.

Undoubtedly, the most striking point was that food inflation increased by 8 percent monthly and 71.2 percent annually. This increase was influenced on one hand by the acceleration in consumption due to the start of Ramadan, and on the other hand by the rise in post-election inflation expectations.

Another important point was the service inflation at the 6 percent level. In fact, these developments showed that expectations continue to create inflation and that consumption continues to be pulled forward due to the inability to manage expectations well.

‘DETERIORATION IN EXPECTATIONS CONTINUES’

Although Mr. Şimşek emphasized that it is important for market actors to believe in the program, the current situation reveals that this belief will not be easily realized and that the deterioration in expectations continues.

In inflation, where the Medium-Term Program (OVP) estimates 33 percent for 2024, and the Central Bank of the Republic of Turkey (TCMB) inflation report estimates a lower limit of 30 percent and an upper limit of 42 percent, while the target remains fixed at 5 percent, the 11.54 percent cumulative increase seen in the first two months of this year shows that this deterioration will continue in the coming days.

‘IN ADDITION TO MONETARY TIGHTENING…’

Under these circumstances, on one hand, the erosion of purchasing power due to high inflation, and on the other hand, the fact that wages are shaped not according to the felt (129 percent) and perceived (96 percent) inflation according to TÜİK data, but according to consumer inflation announced far below these, causes the economic and social costs borne by the broad masses and caused by inflation to increase even further.

In this case, what needs to be done is to implement fiscal tightening in addition to monetary tightening, and not to compromise on this. Of course, the election climate hinders fiscal tightening. We will see after the elections whether this tightening will be realized through revenue-increasing or savings-increasing measures. Mr. Şimşek stated that there will be no increase in the general rate of taxes. In any case, a contrary situation would increase the severity experienced by the masses who consume less and are forced to settle for less income.”