Tanking Lira and Soaring Inflation Wreaks Havoc on Turkish Economy

Hours in line at subsidized bread kiosks, food and medicine shortages, and struggles to make rent—these are only a few of the hardships facing the Turkish populace as inflation rose by an average of 36 percent in last month alone. Many suspect the actual number to be much higher. 

As the Turkish people continue to lose confidence in the currency, the rapidly diminishing purchasing power of the Turkish lira leaves many people struggling to make ends meet. A surge in demand at Turkish subsidized bread kiosks attests to ever increasing numbers of Turks sinking below the national poverty line. Such economic effects hardly hit proportionally across the socioeconomic spectrum: Ozgen Nama, the vice head of  Istanbul’s Halk Ekmek—the federal programme responsible for subsidized bread—shared that although demand has increased everywhere, the greatest surges are being experienced in working class communities.

 The largest impacts of inflation are being seen in areas such as food, medicine, and transportation, where consumers are experiencing acute shortages caused by high import costs in addition to COVID-19-related supply chain shortages. Even local farmer produce has seen a price hike of 50 percent in the past few weeks alone, and electricity prices have risen as much as 125 percent. Almost all product markets have seen substantial increases, with some industries undeniably more than others.

 The nation’s economic stakeholders have been some of the most vocal victims of the crisis. Pharmaceutical supplies are depleting due to reliance on imports. The Turkish Pharmacists Association sounded the alarm that 645 different drug supplies were running dangerously low since price caps have not been adjusted to reflect the lira plunge. Farmers have also had to bear the brunt of inflation with the cost of fertilizer soaring too rapidly to purchase. Official statistics report that fertilizer prices have increased by 72 percent since last year. In retail, Turkey’s United Brands Association, representing 384 brands and 70,000 domestic stores, found that more than half of retailers reported over a 50 percent decline in sales compared to last year, marked by lockdowns.

 The current volatility of Turkey’s economy is the result of the chain of events catalyzed by Turkish President Recep Tayyip Erdoğan’s slashes to central bank interest rates. By lowering Turkey’s interest rate, Erdoğan bets against the tendency of lower borrowing costs to increase price pressures. “They are assuming lowering interest rates would lead to high exchange rates,” Harun Ozturkler, professor of econometrics at Kırıkkale University, told Al Jazeera. “Turkish goods and services will become cheaper in terms of our trade partners’ currency.” While the value of the lira collapses, Erdoğan is prioritizing exports. However, the volatile state of markets only discourages foreign investment. Erdoğan’s policies shoot himself in the proverbial foot—and bring his countrymen down with him. Even with the massive backlash and rapidly slipping poll numbers, Erdoğan is holding fast to his policy. So far, he has raised the minimum wage by 50 percent, reigned in the price gouging of essential items, and proposed a deposit scheme to support the lira. Still, these measures fall short in protecting the Turkish people, who suspect the government of manipulating the statistics being presented to the public. Experts worry that if the public perceive inflation to be higher than it is, that may further drive up the steady increase projected by economists. Current government solutions do very little to alleviate the suffering of the Turkish people or the rapidly deteriorating standard of living, and the situation is predicted to only get worse from here.

By: Dominique Williams

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