Azernews.Az

By Deniz Istikbal

The series of global crises left behind disruptive effects on price stability. The pandemic that started in 2020 and the ensuing energy crisis increased global inflation to historically high levels. Consumer prices, which rose to double digits, especially in developed countries, deeply affected lower and middle-income groups. A similar process took place in Turkiye, as well. While the supply crisis made it difficult for products to reach consumers, energy price increases caused costs to rise. According to the United Nations Food Price Index, food prices have reached the highest level since the recorded date, reaching 65 percent. Regional wars have been added to the process that resembles a global crisis regarding energy, food and supply. The conflict, which started in Ukraine and risked spreading to different countries, caused costs to jump upwards. The $20 trillion resource injected by central banks into global markets after 2020 also played an important role in increasing inflationary pressure. The increase in the global debt level from 200 trillion dollars to 300 trillion dollars in a three-year period indicates that new crises may occur. Institutions such as the UN, IMF and World Bank emphasize the duration of inflationary pressure in 2024 and the possibility of decreasing it to reasonable levels in 2025.

GLOBAL PRESSURE OF PANDEMIC AND WAR

The pandemic has had devastating effects on economic realities and debates. The closures and decline in production caused supply-side product constraints. While governments put social aid on the agenda, central banks tried to ensure market functioning by reducing interest rates to historically low levels. Central banks with a high degree of international influence, such as the European Central Bank and the Fed, emphasized that inflation will not increase after the decrease in interest rates. However, contrary to what was said, global inflationary pressure began to increase as of mid-2021. The Ukrainian War, which started in February 2022, had a rebound effect on prices. In addition to the cost of the war, its global impact caused increases in almost all items, especially food and energy prices. The inflationary spiral that deeply affects underdeveloped and developing countries continues to be effective today. Consumer inflation, which has been restrained in developed countries, is expected to improve further in 2024. However, it should not be forgotten that it will take time for prices to reach their normal levels in 2019.

GOALS OF DECISION-MAKERS

The period 2004-2017 was a time when inflation was relatively low. Exchange rate-based fluctuations in 2018 caused inflation to climb to double digits. Price increases, which followed a calm course in 2019 and 2020 but accelerated in 2021, had a negative impact on lower and middle-income groups. Annual inflation, which reached 36 percent in 2021 and 65 percent in 2022 and 2023, is expected to calm down in 2024 and decrease to a reasonable level in 2025. Following the latest revisions, public decision-makers, who are working to reduce demand and increase supply-side production, aim to rein in inflation. The fact that price stability has become the main goal and the explanation of how to fight inflation in the Medium Term Program (2024-2026) shows the determination of decision-makers. Approaching the process to reduce inflation back to single digits in a medium-term manner is closely related to balancing employment and growth.

SAVING CULTURE IN PUBLIC

While decision-makers suppress demand with interest rate increases, they take care of exporting companies with a selective credit policy. In order to prevent a sudden decrease in employment, public resources are trying to be shifted to more productive areas. Making the savings culture permanent, especially in the public sector, stands out as the most important solution.

The Central Bank's increase in interest rates starting from July 2023 will play an important role in reversing the inflationary wave. The fact that deposit interest rates, reaching 50 percent, act as a shield against inflation encourages individual investors to invest in Turkish Lira. As total demand slows down and future expectations improve, it is expected that the steps that will restrain inflation as a whole will increasingly continue. The improvement of global conditions starting from the second quarter of 2024 may also contribute to Turkiye's fight against inflation.

WHEN WILL THE INCREASE IN WELFARE BE FELT?

Inflation, which is expected to fall to the range of 36-42 percent in December 2024, seems possible to reach reasonable levels in 2025. The fact that the Fed and the European Central Bank have reduced interest rates to the highest level of the last 20 years makes the process more difficult. The tight monetary policy implemented at a time when the need for external financing was increasing not only shook the developing countries but also had a negative impact on Turkiye. However, in the following months, the Fed will start to reduce interest rates and take a step back in monetary tightening, which will have a positive impact on investments coming to Turkiye. If the European Central Bank follows the Fed and reduces interest rates, this will increase investment appetite.

After the epidemic, supply-side dependence on China became more visible. Difficulties in product supply encouraged European countries to seek nearby markets. As a production center, the Turkish industry turned the crisis into an opportunity. Turkish industry, which increased both its production capacity and its share in the European market, brought additional foreign currency to Turkiye. The increase in welfare, which could not be felt sufficiently due to high inflation, can be expected to be felt more starting from the second quarter of 2024. In particular, the public's implementation of the structural reform agenda in 2024 may accelerate the influx of investors to Turkiye with the improvement of the investment environment. As a result, by eliminating inflation as a problem and improving income distribution, lower and middle-income groups can benefit from the structural transformation to the maximum extent.

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