What’s behind inflation?

Dünya Executive - - COMMENTARY -

Inflation generally arises either because demand increases too much or costs rise. Can we say that Turkish citizens have found more money than before so they want to buy whatever they find, thus increasing demand? Of course not. Prices in Turkey are clearly not rising because of demand. On the contrary, as the prices have soared, citizens have spent less and less. In addition, the share of staple goods is also increasing in their spending.

If we are not experienci­ng demand-driven inflation, there remains cost inflation. Could a country like Turkey, where three quarters of industrial production relies on imported inputs, and almost all of its energy needs are also imported, not be affected when the exchange rates rise?

The sharp turn came with a warning: Whether from malicious acts against Turkey or emerging from the general trend in the world and the indebtedne­ss of Turkish companies, there is ultimately a problem and Turkey needs to take measures.

But we continue to say, “Nothing is happening to us” and “Turkey’s economy will overcome this.” Of course Turkey will get through this, but what about the resulting destructio­n and companies that have to successive­ly declare concordat? If the problem is not that big, not to be exaggerate­d, why do we have to announce a new package of measures every single month?

The source of these record inflation rates is the increase in costs. The third fact: the increase in costs is due to the increase in the exchange rate. The exchange rate increase has not disappeare­d. Although the dollar is trading below the September average in October, it is still above 6 liras. Therefore, considerin­g this important factor in increasing the costs of industrial­ists, how will they overcome it by applying a 10 percent discount to their products? A 10 percent price reduction in industrial products, except for those whose prices fall due to seasonal factors and whose supply is decreasing, will have little meaning. Think of it this way: If the prices can be reduced by 10 percent in a period where the exchange rate is so high and costs are soaring, that must mean that there was a wide profit margin. If there isn’t, and companies still participat­e in the price reduction campaign, this reflects the concern that the cost of not participat­ing will be more severe.

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