Inflation will go down to one digit, but when?

Dünya Executive - - COMMENTARY - Alaatt n AKTAS Economist

In a speech last week, President Erdogan referred to price increases and said that inflation would again fall to 6 percent. The prevailing expectatio­n, however, is that single-digit inflation, especially levels like 6 percent, occurred many years ago and those rates belong to past days. Don’t you think so? How can we expect to reach 6 percent when we were at 25 percent in October last year?

The current level - 20 percent - it is still far from 6 percent! The gap is huge. However, less than three years ago we were in fact at the 6 percent level. Since April that year, we have failed to prevent inflation from skyrocketi­ng up to more than 25 percent. External forces, internal politics or those who are jealous of Turkey, whoever is responsibl­e for this, the result is important. We managed to reach 25 percent inflation from 6 percent in a mere two and a half years.

Can we do the same in reverse? It is not that easy, but it is the target and the expectatio­n. The CPI is expected to be 15.9 in the new economy program. According to the program, CPI is expected to decrease to 9.8 percent in 2020 and to 6 percent in 2021. If we meet those expectatio­ns, inflation will be reduced from 25 to 6 in just over three years.

Despite all incentives This is far from a sure thing, of course. After all, the targets in the new economy program are medium-term forecasts but under current circumstan­ces, we are not in a position to predict what will happen even a month from now. A series of measures were taken in order to keep demand alive, such as tax cuts, but still demand is not as high as we want. The recession in the market is spread across all sectors.

Even in such a recession, CPI is still around 20 percent. But if the markets recover even a little, will the prices go down or up? For a rapid decline in prices, the market must lose even more steam; it must go stagnant.

But it is possible to reduce prices to single digits and re- vive the market simultaneo­usly. But let’s face it, it’s not easy, and it doesn’t seem to fit on a threeyear timeline. In fact, a number of factors beyond Turkey’s control may also come into play. We could not revive the economy even with regulation­s such as tax cuts, longer credit card payment plans, regulation­s supporting employment and credit facilities. Even in such a recession, we could not reduce the rate price increase to the extent that we expected. What happens when these incentives are removed? Will inflation go down rapidly or go back to an upward trend again?

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