Trend on the rise in the fluctuating inflation

When inflation dropped after six months to a single digit at the end of July, it created a festive joy. 

With the August inflation rate to be announced this week, the annual inflation figure is expected to rise to double digits again.

This actually has been in the expectations for a long time. Yet this government, just like past governments, prefer to present good figures in an exaggerated way, while it turns a blind eye to bad figures.

That’s why don’t be surprised if the inflation rate is not on the agenda next week.

The Central Bank has been saying for some time that inflation will follow a fluctuating course but that it will drop to a single-digit figure by the yearend.

According to surveys, a 0.2 percent rise is expected in August’s consumer prices. That way, annual price rises will go as high as 10.3 percent.

Actually, inflation has been in a two-digit figure, above 10 percent, since the beginning of the year. At the end of July, the annual rise had dropped to 9.79 percent. The prices had dropped by 0.29 percent in August last year. Yet it is estimated to be on the rise for this year’s August. That’s why an annual inflation rate is expected to rise to a double-digit figure again. 

Inflation rates are one of the most fragile macroeconomic indicators and can change the economic balance.

For instance, this figure will play a key role in the 2018 budget works that will intensify after the long holiday break as well as in the balances within the mid-term program that is being renewed. That’s why the government and the Central Bank say inflation will drop to single digit by the yearend to keep the mood positive and influence expectations.

No serious struggle

It is definite that the rise in foreign exchange rates as well as keeping the domestic demand high have had an important role in the rise of inflation to a double-digit figure.

For some time there has been some stability in the foreign exchange rates and that’s why we can say that the rise in inflation has stopped. In other words, the impact of the foreign exchange rates will be great on the trend the inflation will take. If you were to ask what will happen with the foreign exchange rates, I can say that we rather know what will happen, but the timing is rather unclear. The delay in the interest rate hike in the United States due to the instability created by President Donald Trump suited Turkey. Stability was relatively achieved in the foreign exchange rates due to the continuation of the flow of hot money. In other words, it is certain that the foreign exchange rates will go high when the U.S. Federal Reserve will start its interest hike. Even if there were to be no rise, when it will start financial tapering; this also will have an impact.

Even if the timing were to change, an upward trend in the exchange rates seems inevitable.

In addition, the trend in domestic consumption has a big share in the inflation.

Even if there is a slight move, as it can be seen from the government’s borrowing program, domestic demand will continue to be kept live through public spending.

Therefore, one can say that the trend on the inflation will be upwards.

Whatever will be done to put the brakes on food inflation, it will remain cosmetic and will not bring much of a contribution in the struggle against inflation. In other words, without finding a structural solution it will be surprising to expect a drop in inflation in the current circumstances.