Inflation is expected to remain high this year in Turkey due to the effects of the global energy prices, Treasury and Finance Minister Nureddin Nebati said, adding that tax investigations have been initiated in many sectors in light of the allegations of speculative price formations and stockpiling.
Turkey’s annual consumer prices index (CPI) rose more than expected to 54.44% in February, while the producer price index (PPI) soared 7.22% month-over-month in February for an annual rise of 105%.
Nebati, who commented on several subjects relating to the Turkish economy in an interview with economics daily Dünya, reiterated that fighting inflation is a top priority.
"We are implementing our short-term, medium and long-term policy steps in this area. First of all, we achieved significant gains by implementing a series of instruments to prevent exchange rate fluctuations that adversely affect price stability," he said.
The country’s inflation reading that marked a two-decade high was fueled by a slide in the Turkish lira late last year and higher commodity prices.
The lira weakened after the central bank in September embarked on an easing cycle, which saw its policy rate being slashed by 500 basis points to 14%.
The policy easing came as the government endorses a new economic program that prioritizes growth, investment and exports while keeping rates low. The government also revealed a currency-protected scheme.
The lira has been broadly stable since the start of the year following a 44% decline in 2021 and was hovering just below 14 against the greenback.
But it topped the level in the last weeks as volatility returned over Russia’s war against Ukraine.
Turkey's energy bill surged last year as global prices and demand rose, leading Ankara to hike energy prices at the start of the year, including a 50% increase in electricity prices for lower-demand households.
Nebati mentioned that they recently reduced the value-added tax (VAT) rate on food products from 8% to 1%, also bringing it down from 18% to 8% for electricity.
"These measures show our determination in the fight against inflation. Meanwhile, we continue our studies on the structural elements of inflation together with our relevant institutions within the Price Stability Committee," he said.
Increases in energy and other commodity prices around the world in the post-pandemic period coupled with supply chains disruptions have led to an increase in inflation at the global level, the minister noted, saying that these supply side effects were also felt in Turkey.
"Inflation is expected to remain high throughout 2022 due to cost pressures, the lagged effect of the exchange rate and the effects of global energy prices. At the end of the year, we expect inflation to decline with determined steps," he said, explaining that once a decrease in inflation is ensured, the gap between the CPI and PPI will narrow.
Nebati went on to say that they will closely monitor how these steps reflect on pricing, promising to fight unfair prices that do not match market realities.
On the impact of the Russia-Ukraine war on Turkey's economy and the global economy as a whole, Nebati said the reforms and policies implemented over the last 20 years have reduced the Turkish economy's vulnerabilities and helped it develop significant resistance to shocks with its strong public finance and banking sector.
"Thanks to this resilience, Turkey's economy grew by 1.8% in 2020, when the pandemic negatively affected all world economies and the global economy contracted by 3.1%, becoming one of the two countries with positive growth along with China."
"Despite the disruptions in the global supply chain, uncertainties caused by the pandemic and rapidly increasing input prices, the Turkish economy grew by 11% in 2021, showing the strongest performance in the last 10 years. Thus, Turkey has been the country with the highest growth rate among the G-20, the OECD and EU countries, according to the data announced," he added.
The minister acknowledged that Russia's war against Ukraine, both of which are important trade partners for Turkey, will surely have some effect on the country’s economy and the global economy, in addition to its devastating humanitarian and social consequences.
Accordingly, the price increases experienced, particularly in energy and agricultural commodities, will put additional pressure on the already high global inflationary environment and cause volatility in financial markets, he said, adding that a decrease in the global risk appetite and a further slowdown in international capital movements are expected.
"Along with these global risks, Turkey may also be affected in the foreign trade, tourism, energy and food sectors due to the size of our economic relations with Russia and Ukraine," Nebati said.