City restaurants make headlines in the UK: 'Erdoğan's economy has not reined in inflation'

The UK's economic newspaper Financial Times (FT) has published a report addressing the Turkish economy. The report states that Turkey's inflation crisis continues even after a year has passed since the implementation of new economic policies under the management of Treasury and Finance Minister Mehmet Şimşek. 

The report, by Adam Samson and Ayla Jean Yackley, is titled "Turkey's inflation crisis remains severe a year into economic turnaround."

CITY RESTAURANTS AND THE ECONOMY

Regarding the 'Kent Lokantası' (city restaurants) opened during the term of Istanbul Metropolitan Municipality Mayor Ekrem İmamoğlu, a broad assessment of the country's economy was made as follows:

“The popularity of the city restaurant shows how President Recep Tayyip Erdoğan's government is struggling to rein in rising inflation a year after launching a comprehensive economic overhaul.” 

TAXES INCREASED BUT...

The report notes that the policy interest rate has been raised from 8.5 percent to 50 percent since the economic overhaul initiated last June under the leadership of Treasury and Finance Minister Mehmet Şimşek, and that credit interest rates—a popular borrowing method for cash-strapped consumers—have tripled since last June to reach 4.25 percent.

Financial Times mentions that the government has increased taxes and signaled that there will be no increase in the minimum wage following the 49 percent hike in January, while also touching upon the public sector austerity package announced last week.

WHO WILL PAY THE PRICE OF INFLATION?

The FT report also includes the views of Prof. Dr. Selva Demiralp, a former FED economist at Koç University; Prof. Dr. Hakan Kara, former Chief Economist of the Central Bank; and Hacer Foggo, founder of the Deep Poverty Network.

Prof. Dr. Selva Demiralp stated, "This is bitter medicine," adding, "Retirees and low-income earners will pay the highest price for the fight against inflation." Furthermore, Demiralp said that "the current level of tightening is not sufficient" in terms of both monetary and fiscal policy for the Central Bank to reach its target. 

POVERTY TRAP SPIRAL

Hacer Foggo stated that with the figure required for a family of four's monthly food expenditure rising to 17,725 liras last month, the hunger threshold has fallen below the minimum wage, adding that Turkey is facing the risk of a 'poverty spiral' and that "the working poor cannot meet their basic needs such as nutrition, housing, health, and transportation."

WHAT IS THE REAL QUESTION TO ASK?

Prof. Dr. Hakan Kara also touched upon small businesses, stating, “Inflation expectations are persistent due to the erosion of credibility in recent years. Financial markets seem to have partially bought into the disinflation story, but the situation becomes even more difficult when it comes to the expectations of households and small businesses.” 

Kara explained that growth needs to slow down, saying:

"Growth needs to slow down much more to bring inflation onto the desired path. The real question is whether the authorities will be patient enough to endure the political consequences of this painful stabilization process.”

The report also includes data from Koç University regarding household inflation expectations. Accordingly, more than 90 percent of consumers think that now is a good time to buy durable goods, a sign that they believe prices will continue to rise.

News Source: 12punto