Inflation signals pointing upward

Annual inflation has neared 8 percent again. The increase in September’s consumer price index (CPI) that was released at the beginning of the week was above market expectations, at 0.89 percent. At the end of September, the annual inflation was 7.95 percent. 

In a Central Bank statement after last month’s Monetary Policy Committee meeting, it said inflation was expected to increase at the end of September because of the belated effect of foreign currency rate hikes and the increase in the prices of unprocessed food. Despite this, a higher increase rate than what markets expected occurred. 

In an inflation report the Central Bank will issue at the end of this month, it is expected that it will revise its targets. 

The data that drew the attention of markets the most was the increase in core inflation rates. The increase trend that started last month in core inflation continued as well in the month of September. By the end of September, core inflation had hit 8.23 percent for the year.

The significance of this rate is that it will have an impact on “CPI rates in the future.” In other words, the increase in core inflation shows that CPI increases will continue in the coming months. For this reason, the 8.23 percent rate has been assessed as a dangerous rate. 

The most important reason for the increase in core inflation is the hike in foreign exchange rates. The increase in foreign exchange rates will inevitably further affect the general price level, in other words, the inflation.    

Result of current monetary policy 

Well, why is the hike in foreign exchange rates so high? 

Of course, the global effects are huge; the expectation of the U.S. Fed’s rate increase is causing capital exit from countries like ours, resulting in a hike in foreign exchange rates. However, the devaluation of the Turkish Lira is not only limited to that. The mistakes made in economic management, primarily monetary policy, and the effect of the climate of political dispute have played an important role in increasing foreign exchange rates. 

It is obvious that the Central Bank, because of political pressure, has not implemented a real anti-inflation monetary policy. The Central Bank, which did not accumulate adequate foreign currency reserve while the foreign currency inflow was high, is avoiding using the only other weapon left to use, the interest rate. Therefore, the Turkish Lira has become one of those national currencies that eroded the most against the dollar and the euro in the international field. Turkey is continuing to be one of the five countries facing the biggest economic risk.  

After the global crisis, very few countries are left in the world that have high inflation; one of them is Turkey. Inflation has not been combatted adequately for the past four or five years; recently, however, this fight has been neglected altogether. 

The escalation of terror and the continuous repetition of elections have fueled this negative course.  

How long this negative course will last will become clearer after the Nov. 1 elections amid the search for a government formula.