As prices soared, Turkey bucked the global trend and didn’t raise interest rates. This was the result

While much of the world anxiously waits to see if central banks will keep raising interest rates to combat a post-pandemic surge in inflation, Turkey is bucking the global trend. 

The nation’s central bank has left rates unchanged at 14 per cent for a seventh month in a row as part of an unorthodox experiment. 

Most economists around the world believe that the best way to bring inflation under control is to raise interest rates. 

By making the cost of borrowing money higher, central banks are trying to force you to buy less. 

While this can trigger slower economic growth and higher unemployment, it can also drive down the costs of goods and services because there’s simply less demand to buy them. 

But Turkey’s President Recep Tayyip Erdogan believes this is a myth.

He has fired three central bank governors in four years for attempting to raise interest rates, and described anyone who draws a link between rates and inflation as “illiterates and traitors”.

“Don’t pay attention to the ramblings of those whose only quality is in viewing the world from London or New York,” he said in May. 

But as the world grapples with inflation driven by Russia’s war in Ukraine and rising energy costs, Turkey has suffered worse than most.

Officially its inflation rate reached nearly 80 per cent in June, its highest in 24 years.

But independent research by the country’s ENAG group of economists found prices had jumped 175 per cent in June compared with the year before.

A man wearing a smart blazer and glasses sits at an outdoor cafe table in an industrial laneway
Turkish economist Ozan Şakar says the spiralling cost of living is partly down to President Tayyip Erdogan’s unorthodox monetary policy.(ABC News: Tom Joyner)

“The inflation rate in Turkey is anyone’s guess at the moment,” Turkish economist Ozan Şakar said.

Turks struggle amid skyrocketing prices

When her husband died last year after a long stay in hospital, Sevim Kilic’s life changed immediately.

Not only had she lost the love of her life, but much of her livelihood too.

Until his death, the couple from a poor, mostly Kurdish neighbourhood of Istanbul relied on their monthly state pension of 5,500 liras — about $460. 

That sum had afforded the two a modest lifestyle, allowing them to heat their home in winter and cook for their children and grandchildren when they came to visit.

An older woman in a deep turquoise hijab sits on a bed with her hands folded on her lap, smiling
Sevim Kilic lives off the pension, but says rising inflation has driven her cost of living well beyond her means.(ABC News: Tom Joyner)

But with her husband’s death, his pension vanished, and suddenly her income was cut in half.

At the same time, the price of simple groceries she once bought without a second thought were rapidly climbing. 

Since last year, eggs have quadrupled at her local market. Cheese has tripled. The price of the detergent she regularly buys has increased 20-fold. 

Her life quickly changed. Meat vanished from her diet. She began to ration potatoes. She stopped buying gifts for her grandchildren. Her daughter had to step in to make rent and pay her bills.

“I can’t travel anymore. I can’t go anywhere. I can’t even go to the cemetery once a week to visit my husband,” Ms Kilic said.

Skyrocketing costs have gutted small businesses too.

‘What are we meant to do?’ 

Around the corner from Ms Kilic’s apartment, Ferhat Dogan hawks his tomatoes, apricots and cucumbers.

A man with a thick moustache wearing grey cap and blue apron holds apricots in his hands, next to a fruit stall
Rising inflation has driven prices of staples like fruit and vegetables through the roof.(ABC News: Tom Joyner)

Like many other shopkeepers in Turkey, Mr Dogan has for years sold his produce to locals on credit, keeping a hand-scrawled ledger where he records sales and money owed.

In recent months, his earnings have collapsed.

Regulars who once filled bags with his cherries or peaches can now only afford a quarter of what they once could.

Mr Dogan has been forced to increase his prices in line with what he must pay his suppliers.

Even his simple credit system is feeling the strain.

Only that morning, a woman bought a watermelon, promising to repay him.

“She said she will bring me the money, but she never did,” he said wistfully.

“That watermelon was 50 liras.”

Trays of fruits including grapes, apples, stonefruit and melons are stacked together. Signs show 15/kilo
Turkey’s inflation has risen to nearly 80 per cent, causing food prices to almost double.(ABC News: Tom Joyner)

Another fruit seller in a nearby neighbourhood, Abdurrahman Boz, has customers who now can only afford a single tomato. He sells them for five liras each.

“The economy is really bad,” he said.

On another street, an elderly woman walking home with her morning shopping lifts two full bags of groceries as if to hold up evidence of the economy’s ill-health.

She lists their contents: A loaf of bread bought for five liras, two packs of chicken gizzards for 50 liras, 15 eggs, and a pack of bulgur.

The total bill is five times what she once paid.

“What are we meant to do?” she said, exasperated.

‘I don’t think it will get better’ 

In response to the tumbling value of its currency, the Turkish government has slashed taxes on some goods, handed out subsidies, and boosted the minimum wage to 5,500 liras — about $450 a month. 

But minimum-wage workers haven’t found much reprieve.

Wages don’t come close to keeping up with the cost of raising a young family, said Sedat Şirin, a groundskeeper at an apartment building in Istanbul.

A man and boy sit at a table sharing a plate of flatbread. A tray with cups of tea is also on the table
Sedat Şirin earns minimum wage as a groundskeeper at an apartment block. He is struggling to provide for his son, Azad.(ABC News: Tom Joyner)

Mr Şirin no longer drives his car if he can help it, and has started tending a small plot at the rear of the apartment block to grow tomatoes and cucumbers to feed his family.

“I don’t think it will get better,” he said.

“This is how our life continues.”

Mr Şirin’s young son, Azad, is experiencing the economic pinch in miniature.

The prices at his school canteen have risen sharply, costing his parents at least 60 liras a day.

To make up for the additional cost, Mr Şirin has suspended his son’s pocket money.

Steam rises from a double-stacked kettle on a gas stove by a window. A pot of potatoes is on another boiler
Those on the state pension say it is no longer enough to cover basic provisions.(ABC News: Tom Joyner)

“Children are unhappy, their heads are bowed,” Mr Şirin said, glancing over at his son, who watched idly nearby.

With an election looming next year, Mr Erdogan faces what political analysts widely view as a challenging re-election, with inflation likely to be a key issue.

“Turkey is a cradle of agriculture in human civilisation,” said economist Ozan Şakar. 

“To think that our people are now struggling to afford food when they have managed to do so for thousands of years is quite unthinkable.”

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