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Editorial

Inflation Cannot Be Tamed by the Sorcerer’s Apprentice

There is no more ‘insidious’ thing than inflation. It disrupts the lives of people, especially those living on fixed incomes, such as retirees. As commodity prices rise, their pensions remain unchanged.

And, unfortunately, interest rates on bank deposits are not rising at the same time.

This is despite the fact that banks earn billions from interest rate hikes on credit cards, home loans, car loans, business loans, and more.

Politicians fear inflation precisely because it affects the quality of life of their constituents, especially middle class and low-income earners.

And yet, once again, inflation has entered our lives, as we can all see by a quick trip down the supermarket aisles.

The sudden rise in inflation is a consequence of the coronavirus pandemic, which has created shortages in the supply of products, thus leading to increases in their prices.

The rise in the price of oil is also outrageous, affecting the prices of everything from newsprint to how many dollars we spend to fill our car with gasoline.

In the face of this development, Central Banks, which are responsible for monetary policy, follow a tried and tested policy that leads to a reduction of inflation over time: They reduce the circulation of money in the economy, as a result of which the interest rates charged by the banks increase, which in turn leads to a reduction in economic activity, which causes prices to fall.

This policy is being implemented now by the U.S. Federal Reserve, the Fed, as well as the Bank of England. In fact, they are expected to raise interest rates repeatedly in 2022.

Yet, Turkish President Erdogan is pursuing the completely opposite policy. A policy that is not based on any proven economic theory.

He insists on lowering interest rates, despite the fact that inflation in Turkey is at least 20%.

The result is that the Turkish lira has lost almost half of its value in 2021, leading to despair among the people, but also at companies that have borrowed from abroad.

A couple of days ago, Erdogan decided to alleviate the financial pain of the lower financial strata, raising the minimum wage by 50%, while at the same time reducing interest rates by 1%, sending the Turkish Lira to its lowest point yet.

Sorcerer’s apprentices should not be playing games with inflation. When people find it difficult to make a living – in the case of Turkey, people are finding it hard to find bread to buy, even if they have the money – they do not hold anyone responsible for their situation other than their country’s leader.

Thus, Erdogan’s popularity is steadily declining, reaching the lowest point of his 18-year presidency. He is risking his hold on power. And as he increasingly risks losing power, he will become even more unpredictable.
For Turkey, but also for its neighbors.

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My name is Charles Robbins, the chief correspondent of the Chicago Daily Tribune in Constantinople.

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