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Economic inflation
In light of the negative repercussions for many countries in the world due to the Corona virus pandemic, the positive news about Turkey comes in terms of high growth rates, as well as an increase in commodity exports

Economic inflation

and the continuous development in the defense industries, which made Turkey the focus of attention in terms of the development of its military technology.

But on the other hand, the Turkish lira is suffering from a well-known decline, to the extent that many dealers with Turkey are constantly recalculating, due to the instability of the exchange rate, and the end result is high inflation rates, which have negative repercussions - economically and socially - in Turkey.

 

The concept of economic inflation:

It is the continuous rise in the general level of prices in a country's economy over time. Inflation is described as the loss of purchasing power over time, which means that the amount of money you have will not buy you today what it bought yesterday.

Inflation is sometimes expressed as the annual change in the prices of daily goods and servicesIt is the continuous rise in the general level of prices in a country's economy over time. Inflation is described as the loss of purchasing power over time, which means that the amount of money you have will not buy you today what it bought yesterday.

Inflation is sometimes expressed as the annual change in the prices of daily goods and services

 

What is the rate of economic inflation in Turkey?

Official data showed that Turkish annual inflation jumped to a new peak, representing the highest level in 24 years, which is 83.45%, and this rate was lower than expectations, after the Turkish Central Bank surprised the markets by cutting interest rates twice in the past two months, despite the high prices.

According to the data received, annual inflation in Turkey accelerated for the sixteenth month in a row, reaching 83.45% in the ninth month of 2022, compared to 80.2% in the eighth month of the same year, according to the data of the Turkish Statistical Authority.

 

Reasons for economic inflation in Turkey:

Interest rate hike:

The interest rate in Turkey is high, as the high interest rate leads to an increase in the costs of production and services, especially if the economy depends heavily on bank credit.

The depreciation of the Turkish lira:

The decrease in the purchasing value of the local currency increases inflation on the demand side, and it is feared during the coming period in light of the trend of oil prices to rise that this will increase the continuation of the inflation rate high for a long time, unless the Turkish government seeks to eliminate other causes of inflation, and perhaps the policy of reducing interest rates It is one of the tools, but in the case of Turkey it needs gradation, and taking into account a period of time that does not cause anxiety among savers and holders of foreign currency.

Rising global energy prices:

 Among the weaknesses that the Turkish economy suffers from, we find that the issue of energy is one of the issues haunting the Turkish economy, as the country relies on importing its oil needs by a large percentage, sometimes estimated at about 90%, which made it tend to encourage power generation from other sources of energy. (Solar, thermal, wind, and nuclear), and recently it was announced that quantities of natural gas had been discovered in some Black Sea fields.

Covid 19 epidemic:

The Turkish economy, like the rest of the world, has been hit by the global coronavirus pandemic, which has slowed trade, led to layoffs, and reduced production; The epidemic also negatively affected tourism in Turkey, which has an important income in the country.

The war in Ukraine:

The Russian-Ukrainian war, which began on February 24, 2022, made the situation worse, as it exacerbated the general situation and caused a resounding earthquake in the global economy.

Private sector borrowing from abroad:

 Among the weaknesses that the Turkish economy suffers from, experts note that the private sector relies heavily on external financing. At a time when we find the value of the country’s external debt amounting to $440 billion, the private sector accounts for about 65% of this debt, which increases This problem is that the private sector has a pressing share in the debt file, in terms of its reliance on short-term debts, which creates continuous and rapid pressures in the demand for the dollar.

US interest rate hike:

 Which led to a rise in the dollar index, which caused a rise in the real value of Turkish imports.

The depreciation of the lira and its impact on inflation in Turkey

Inflation in Turkey began to escalate since the fall of 2021, when the Turkish lira witnessed a sharp decline, following the Turkish Central Bank's launch of an easing course for monetary policy by cutting interest rates by 500 basis points.

Since 2014, the Turkish lira has been suffering from a continuous decline in its value, due to a set of political and economic considerations, foremost of which was the regional situation that prompted the Turkish government to engage in several regional issues related to Turkish national security, and to seek to preserve the capabilities of the state's sovereignty.

 

How did inflation affect investment in Turkey?

With regard to the impact of inflation on investment in Turkey, it does not seem to have had much impact on investment in Turkey, as "the percentage of foreign investment in Turkey increased to 27% during the year 2021."

According to the statement, "Turkey came in fifth place after France, Britain, Germany and Spain."

Turkey is seeking to transform into a global center for industry and export, by exploiting the supply chain crisis resulting from the emerging “Corona” virus pandemic, especially with its central geographical location linking the three continents (Europe, Asia and Africa).

Turkey also has the necessary infrastructure for supply, which is something the Turkish government has worked on through the huge transportation projects that the country has witnessed since 2002.

Turkey's share of global exports exceeded 1% for the first time in history, during the year 2021.

 

How is the reserve against economic inflation in Turkey?

Taming inflation is a big and important challenge, but Turkey's experience after 2001 has shown that with the right policies, this can be done, plus foreign direct investment can boom to take advantage of Turkey's position as a low-cost manufacturing hub on Europe's doorstep.

Durable goods are a means of hedging against inflation, as new cars, white goods, or imported luxuries retain their value better than the lira, even if they are not liquid as a store of value, such as gold coins or dollar bonds.

We can advise here to try real estate investment in Turkey as a way to hedge against inflation.

 

 

What are the economic solutions to reduce inflation in Turkey?

·       It is difficult for the monetary policy maker to address the problem of inflation from both sides, supply and demand, but gradualism is required

·       Reducing the value of private sector borrowing from abroad, focusing on participation financing, giving more space to Islamic financing, and encouraging individuals to deal away from foreign exchange and limiting transactions to the local currency.

·       Reconsidering the minimum wage, amending all long-term collective agreements, and granting retirees an increase above the rate of inflation,

·       As for Turkish companies, Turkey has a history of high inflation, and business owners have become experts in dealing with financial turmoil, and companies in Turkey have sufficient experience to adapt to the weak lira since 2018, so many of them sought to reduce their "dollar" debts, and take the necessary measures to deal with inflation.

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