Interest rates and happiness
that this article concludes IF YOU THINK that ‘interest rate causes happiness’ or ‘happiness causes interest rates’ when you saw the title, you are wrong.
The Turkish Statistical Institute (TurkStat) will release the life satisfaction survey for 2021 on Thursday this week. The Central Bank will announce the interest rate decision the same day at 2:00 PM. We can’t say that these two are unrelated. The economic situation is among the most important factors determining life satisfaction. As you know, the economic situation isn’t going well. Monetary policy and life satisfaction intersect at some point in this relationship. But first, let’s see what happened last week.
CONSTRUCTION COSTS QUADRUPLED IN SIX YEARS
I think that the Construction Cost Index (CCI) was among the most important pieces of data released last week, although it didn’t come to the fore of the agenda. The CCI exceeded 400 points in December. This means that construction costs rose to 400 in December 2021, if the costs are considered as 100 in 2015. It is a dramatic hike.
The sharpest hike in the 2015based index was observed in 2021. The surge, which hadn’t thus far exceeded 25%, has hit a 20-year high. You are all aware of the reason for this increase.
UNEMPLOYMENT DECREASED
The unemployment rate, which saw 13% at the end of 2020, decreased to 11.3% at the end of 2021. The number of unemployed people dropped by 195,000 in the last 12 months, while the economy created 3.2 million new jobs. However, we must remember that the base year was the first year of COVID -19 when performance drastically deteriorated. Yet, the 2021 performance shouldn’t be underrated. Although the real wages decreased and the cost of living jumped, we left a year with increased confidence indices across many sectors (except agriculture), and employment backed by the surge especially in industrial production and exports.
However, it’s hard to say the same for 2022. The impact of the damage caused by the hike in foreign exchange (FX) rates will be felt for a long time. Increasing inflation will be permanent for an even longer time. The rise in wages in salaries will be irrelevant against the inflation in Q1 2022. This will further limit household expenditures. Activities may slow in the retail and services sectors, and this may weaken employment in those sectors. Although the headline PMI (Purchasing Managers Index) is in the positive, a look at the details reveals deterioration in many sectors. This means that the manufacturing industry will gradually show a weak performance in terms of new employment.
CURRENT ACCOUNT BALANCE
The current account balance posted USD 3.84bn deficit in December 2021. The gap was the highest deficit recorded in 2021 on a monthly basis.
The current deficit (CAD) totaled USD 14.88bn in 2021. The annual CAD amounted to USD 35.5bn in 2020.
The CAD may rise in the upcoming period due to the surge in energy imports.
INTEREST RATE DECISION
One of the most important developments of this week will be the Monetary Policy Committee’s (PPK) interest rate decision. The PPK, which kept the policy rate steady in January following four successive cuts, is expected to keep the interest rate steady at this meeting as well.
The year-end Consumer Price Index (CPI) expectation rose to 34.06% for 2022 according to the February results of the Central Bank’s
Survey of Market Participants.
The year-end CPI expectation was 29.75% in the January results of the survey. Participants’ year-end USD/TRY expectations declined from 16.13 to 16.04 in February month-over-month. The growth expectation remained steady at 3.7%.
Forecasts that the Federal Reserve (FED) will increase the interest rate by 50 basis points in March have grown following the release of inflation data in the U.S. last week showing a 7.5% rise. We are moving towards rapid interest rate hikes across the world. There is no possibility that Turkey, which has high inflation and negative real interest rates, will positively be affected by this.
I AM HAPPY, YOU ARE HAPPY HE IS HAPPY… OR IS HE?
TurkStat will release results of the life satisfaction in Turkey survey for 2021 a few hours before the PPK’s interest rate decision. This survey is conducted to measure the general happiness of people, their social values, general satisfaction in the main components of life, and satisfaction with public services.
IN 2020, THE SHARE OF…
Those who said they were very happy was 8.8%
Those who said they were happy was 39.4%
Those who said they were neither happy nor unhappy was 37.3%
Those who said they were unhappy was 10%
Those who said they were very unhappy was 4.5%
Overall, the number of people who could be considered “happy” totaled 48.2% while the total number of people who were “unhappy” was 14.5%.
Only 48.2% of people being happy in 2020 represented an all-time low. It would be extreme optimism to expect a better result in 2021 over 2020 considering the increasing costs of livelihood, deteriorating fiscal balances, historic lows in the consumer confidence index.