Doubts over Turkish finance minister’s announcement of low inflation next summer

Despite rising oil prices and rising inflation in Turkey, Turkish Treasury and Finance Minister Nureddin Vegetarian said inflation would start to decline by the beginning of summer, during a speech at the International Real Estate Exhibition in France.
This comes in the wake of the ongoing global turmoil due to the Russian invasion of Ukraine, which is leading the world to a crisis economic situation amid pessimistic expectations, especially with the escalation of global inflation rates in addition to the repercussions of the Corona epidemic that continues to plague the markets.
If we look at the Turkish interior, fuel prices are on an upward trajectory day after day, and people rarely hear the news of a drop in fuel prices, especially with oil prices reaching $ 115 a barrel.
The rise in fuel prices is reflected in the prices of transportation, and consequently the prices of food commodities are rising daily.
Professor of finance at the Basaksehir University in Istanbul, Firas Shabo, said that inflation in Turkey was destined to rise, not to fall, as economic reality says the opposite of what the Minister of Finance is talking about.
Inflation in the United States reached 7.9% for the first time in 40 years last February, and the consumer price index in Europe reached 5.9%.
Shabo spoke to Al-Araby Al-Jadeed, adding that it is normal for Turkey to have an inflationary situation as it is part of the world, noting that the inflation rate in Turkey is high as prices are much higher than the exchange rate has become. changes.

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He continued: “When the exchange rate of the lira was 18 against the dollar, the prices did not reach what they reached today, and this is an absolutely unhealthy indicator. The rise in prices while the exchange rate remains fixed means that the exchange rate is somewhat not free. “
Since the beginning of the Russian invasion of Ukraine, the exchange rate of the lira against the dollar has fallen by about 7.2 percent, from 13.8 to 14.8 lira against the dollar.
The consumer price index (inflation) in Turkey rose by 4.81 percent on a monthly basis to 54.44 percent year-on-year in February, according to data from the Turkish Statistical Authority.
Some central banks around the world have raised interest rates in an effort to curb inflation, but Shabo believes the Turkish central bank will not change its interest rate policy, at least for the foreseeable future, until it becomes clear where the war is going. . terms of calm or escalation.
The professor of finance explained that the situation in Turkey now carries no interest rate hike, especially in light of the enormous inflationary pressure and the approach of the dollar to the exchange rate of 15 liras, which heralds a new wave of price increases, and therefore can be said that the Ministry of Finance’s speech is primarily optimistic.

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The US Federal Reserve raised the interest rate on March 16 for the first time since late 2018 by a quarter of a percentage point to increase the interest rate range from zero – 0.25 percent to 0.25 – 0.5 percent, and this will increase them again during the coming period .
Which drains dollar resources in developing and emerging countries like Turkey, due to the flight of hot money filling their markets to the US market in search of bigger profits and less risks, leading to more pressure on the Turkish lira.
In turn, economic expert Ahmed Mosbeh told Al-Araby Al-Jadeed that “given the continuation of the Russian invasion and America’s policy of raising interest rates and the continuation of the supply crisis, how can we talk about lows inflation in Turkey with the advent of next summer? “
Musabeh spoke to Al-Araby Al-Jadeed and pointed out that the logic the Turkish finance minister is relying on next summer is to increase foreign cash flow from tourism and trade, which is positively reflected due to the increased demand for the lira and increases the volume of incoming foreign currencies, thus improving the balance of Foreign reserves and accordingly improving the lira and then prices fall.
Mosbeh believes that accepting this scenario on which the Minister of Finance is based will not be easy for several reasons, including that this proposal could be logical under normal circumstances if inflation rates move around 15 to 20 percent and not at 55 percent.
He pointed out that if the war continues until next summer, it would mean depriving Turkish tourism of at least 5 million tourists, which would be a serious blow to the country’s tourism season.
He expected a decrease in the proportion of Russian and Ukrainian tourism during the coming period, which would negatively affect the tourism sector in Turkey, which in 2021 attracted about 4.7 million Russian tourists and 2.1 million Ukrainian tourists, or about 27 , 34 percent of the total 24.7 million foreign tourists who arrived through the year.
Mosbeh concluded that the internal and external data is difficult. The Russo-Ukrainian war and the global rise in food and energy prices are largely suffering under Turkey and are factors beyond the government’s control. Therefore, it would be unrealistic to embrace the idea of ​​reducing inflation to single digits.

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