Turkish deputy PM says inflation main economic challenge in 2016

ANKARA

REUTERS photo

Turkey’s main economic challenge this year will be battling inflation amid a continuing increase in the rate, according to Turkish Deputy Prime Minister Mehmet Şimşek. 

“The general trend in the inflation rate is not at desired levels and our inflation performance is relatively poorer than our general macroeconomic performance…We need to maintain solid steps in the fight against the rising inflation rate in 2016. This target can be achieved,” he said in a televised interview with NTV on Jan. 4. 

Consumer prices rose 8.81 percent year-on-year in December 2015, above estimates, data from the Turkish Statistics Institute (TÜİK) showed on Jan. 4. On the 12-month basis, the average rate was 7.67 percent in December 2015. According to TÜİK data, the largest increase was seen in food and non-alcoholic beverages last month with a 1.24 percent hike. The steepest drop was seen in clothing and footwear with a decrease of around 2 percent. 

“Food prices have continued to rise. Besides, the loss in the Turkish Lira’s value also caused some hikes in the inflation rate both November and December 2015,” Oyak Investment Chief Economist Mehmet Besimoğlu was quoted as saying by Reuters on Jan. 4. 

“The annual inflation hit even 1 percent higher than the latest estimate of the Central Bank, and this is negative in terms of credibility. Furthermore, we don’t see any move on the monetary policy side. The Central Bank doesn’t even limit liquidity … By foreseeing the hikes in cigarette, alcoholic drink and electricity prices, we had already pushed up our 2016 inflation estimate from 7 to 8 percent, but there will be more as the price hikes will affect the pricing trends,” he added. 

Hikes in taxes, prices

The government increased special taxes on cigarette and alcoholic drinks and made a 6.8 percent hike in electricity prices two days after announcing a 30 percent hike in the minimum wage for workers. Bridge and highway tolls also rose 16 percent on Jan. 1. 

Şimşek said the impact of the minimum wage hike could be between 1.1-2.2 percent on inflation, according to government studies.

Turkey increased its minimum wage on Jan. 1, while the government has vowed to meet 40 percent of the costs of the hike for the private sector in 2016 amid warnings about a possible increase in unregistered employment.  

Şimşek also said economic growth this year could reach 4 percent, predicting that it may rise to around 4.5 percent. 

“Turkey succeeded in growing above the global average in 2015. We maintained our budget discipline, but allocated some gap areas for the sake of investments as Turkey needs to lure more investments. We’ll continue to preserve our fiscal discipline approach this year as well,” he said. 

Şimşek said the government would realize the required reforms in the next couple of months. 

“In this vein, Turkey could differentiate itself from other countries in a positive manner,” he said. 

Şimşek also predicted Turkey’s strong need for foreign capital will see a gradual decline as its current account deficit has been narrowing, adding that the country’s gap was probably around $31 billion to 32 billion. 

He also described the net economic effect of tensions with Russia as “very limited.”