Why is TRNC inflation higher than in Turkey?
THE depreciation of the Turkish lira has a negative impact on inflation, especially in North Cyprus, because 90 to 95 per cent of the country’s goods come from abroad and most are priced in foreign currencies.
This in turn reflects negatively on wholesalers, retailers and finally on consumers in the form of higher prices.
In addition, oil prices in foreign currency are also on the rise. Fuel is one of the main input items in our economy. People have been negatively affected by fuel price hikes in all sectors, especially transportation.
We generate electricity using oil. Therefore with the increase in the cost of oil, electricity prices also went up and it became a vicious circle, which is then passed on to production costs, and on to goods and services as higher prices. Thus, inflation rates also increase.
Annual inflation in the TRNC is around 120 per cent. However in Turkey this figure is 85 per cent. The annual inflation rate for food and non-alcoholic beverages in the TRNC is 130 per cent.
One of the most important reasons for this difference is that the North Cyprus market is hypersensitive to foreign currency.
In Turkey housing rents, private school fees, car sales and many goods and services are priced in TL, but these goods and services are priced in foreign currency in North Cyprus, not to mention that many goods are produced in Turkey.
As we are an island country, both transportation and import taxes increase costs. . . All these reasons increase inflation in the TRNC.
Of course, there are also recommended solutions for these problems. With the measures to be taken, the higher prices caused by foreign currency exchange rates will be prevented to a certain extent.
Since 90 to 95 per cent of the goods in the country come from abroad, the exchange rate needs to be fixed on imports.
In addition, the reduction of VAT, fees and all taxes, especially on food, medicine and cleaning supplies, may prevent further increases in prices. In Turkey, a reduction in taxes on these products was implemented. This can be done here too.
Another measure is that the Price Stability Fund (FİF) can be used to prevent a price increase in fuel, one of the most important input costs of the economy, from being reflected at the pump. This was implemented by previous governments. Of course, the FİF resource should not be used for other things.
Electricity is also one of the most important input costs in the economy. This year’s electricity hike, which was around 250 per cent, has crippled both the sectors and the economy. In this context, whopping electricity price hikes should not be fully passed on to consumers.
In the recent past, part of the electricity hike was not passed on to the people during the four-party coalition government [20182019] with the costs absorbed by the Finance Ministry.
However, because such measures have not been taken in the last three years, we are faced with staggering electricity price hikes.
In addition, the most important means to eliminate the negative effects of exchange rate increases is to switch to a stable currency. Strong government determination is needed in order to implement this.
The use of euro as an accounting unit does not mean that the currency to be used in the market is the euro. It means a transition to a euro-indexed system.
Many goods and services in our country are priced in foreign currency. In other words, our expenditures and expenses are based on foreign currency. However, the citizens’ income is in TL.
If we switch to a euroindexed policy, incomes will be indexed to the euro and the public and sectors will be protected to some extent from the TL’s depreciation.
In short, the economy and the market will gain stability.
The people’s purchasing power will not decrease and everyone will be able to plan for the future better.