Hard-pressed Turks must wait longer for inflation to drop

September 16, 2024, 10:26 AM

A cafe in the Cengelkoy district on the Asian side of Istanbul: cafe and restaurant prices have risen by more than two thirds

Forecast for 2024 inflation raised
GDP growth expectation lowered
‘Geopolitical tensions’ blamed

Turkey’s main inflation rate may have fallen from the 75 percent-plus high seen earlier this year, but the latest forecasts suggest Turks will have to live with a rising cost of living for some time to come, maintaining pressure on consumers and producers alike.

On September 5, the Turkish government released revised medium-term economic projections, with consumer inflation forecasts higher than in previous estimates for this and subsequent years.

Growth is now expected to fall short of the targets laid out earlier this year.

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The prediction for year-end inflation for 2024 was raised to 41.5 percent, up from 33 percent at the beginning of the year. Expectations for the rise in the consumer price index in 2025 have also been increased, from 15 percent to 17.5 percent.

GDP growth expectations for 2024 are now only 3.5 percent, down from the 4 percent set in last year’s programme. This points to an additional deceleration in the economy, with data issued at the beginning of September showing growth of 4 percent in the first half of the year.

Turkey was badly affected by a huge earthquake in February last year which hit the southeast of the country while what critics say was politically-motivated spending ahead of presidential elections and repressed interest rates have exacerbated inflation.

Vice-President Cevdet Yılmaz has attributed the revised forecasts to “rising geopolitical tensions in the region”.

However, Asalettin Arsanoğlu, the Istanbul representative of the Confederation of Progressive Trade Unions of Turkey, believes the problems originate closer to home.

The Justice and Development Party of President Recep Tayyip Erdoğan has been in power since 2002, Arsanoğlu points out. He says the government must take responsibility for the economic situation, rather than simply imposing austerity measures that affect the poorest most.

“When you do not diagnose the problem correctly, one can never apply the right remedy,” Arsanoğlu tells AGBI. “To see workers, pensioners and public servants, whose purchasing power has fallen over the past year, as the cause of inflation is the wrong diagnosis.”

Vice President Cevdet Yılmaz has attributed the gloomy forecasts to 'rising geopolitical tensions', but not everyone agrees — Vice-President Cevdet Yılmaz has attributed the gloomy forecasts to ‘rising geopolitical tensions’, but not everyone agrees

The economic projections come after a steep rise in the number of Turkish companies closing their doors in the first seven months of this year, to almost 15,000.

This is a 28 percent increase on January to July 2023, says the Union of Chambers and Commodities Exchanges of Turkey, an employer lobby group.

The number of Turkish companies given court protection against debt nearly doubled in the first eight months of 2024. Close to 1,000 firms sought shelter from creditors.

Mesut Öksüz, president of the Turkish Housewares Association, says restricted access to credit, including high interest rates and limits on payment by instalments, along with rising bank commission costs and inflation, are hitting manufacturers hard.

“Our businessmen are being crushed under the fixed costs of workforce, power and rent, as well as the changing costs of raw materials needed for production,” Öksüz says.

“In an environment where turnover has fallen by half, in order to meet their fixed costs businesses have taken to selling their stock at cost, without contemplating profits, in order to secure cashflow.”

Although Turkey’s inflation rate is widely expected to fall below 50 percent in September as government measures bite deeper, some components of the consumer price index remain stubbornly high.

Education costs rose 120 percent year on year in August, ahead of the new school term. The rise for the month was more than 11 percent, as spending on fees, uniforms, books and equipment ramped up, building the pressure on many households.

Despite the government’s disinflation programme, it is likely to take families some years to smooth out the budgetary dents.

A report by the Istanbul Planning Agency has found a fifth of school-age children now live in poverty. Another survey, carried out by the state statistics agency Turkstat, showed more than 700,000 school-age children were in the workforce – though some non-governmental organisations put the figure much higher.

For Melike, a mother of three living on the outskirts of Istanbul, falling incomes and rising costs mean some of her children may not be able to finish school.

“I used to work in a textile company that would call if they had orders, but as orders dried up, I have no work. My husband works in construction, but he is getting fewer and fewer jobs,” she says.

“The school year has made a dent in our budget, which has already shrunk. I have started working cleaning homes and I plan to take my daughter along. I would rather she went to school, but she will gain skills and help contribute to the family budget.”