Tax cuts have somewhat dampened price increases. But with 20.3 percent, it is still high and suffers from purchasing power.

Turkey Against Inflation

Turkey’s inflation slowed more than expected at the end of the year due to tax cuts and rebates. Consumer prices rose in December by 20.3 percent over the same month last year, as the statistics office announced on Thursday. Economists had expected 20.5 percent after reaching a 15-year high of 25 percent in October.

The government has reduced the second consecutive decline, cutting taxes on consumer goods such as vehicles, furniture and appliances. It also called for shops to offer at least ten percent discount on goods that had become particularly expensive by the end of 2018.

Nevertheless, inflation remains at a high level and saps consumers’ purchasing power. The reason for this is the devaluation of the local currency lira. It lost 28 percent against the dollar over the past year as investors questioned the central bank’s independence and intensified economic concerns over the strained political relationship between Turkey and the US. As a result, imports increased considerably.

At the height of the crisis, the central bank responded with a strong 6.25 percentage point hike in interest rates to make the currency more attractive again. Meanwhile, relations with the US have improved again, stabilizing the lira. The government of President Recep Tayyip Erdogan plans to raise the minimum wage by more than a quarter this year. However, according to experts, this can push up inflation by 1.5 to 2.0 percentage points as companies pass on increased staffing costs to customers.

Sources: Die Presse

Comments