Turkey’s consumer price inflation rate is far higher than the government is reporting, according to Steve Hanke, professor of applied economics at John Hopkins University.
The most important price in Turkey’s economy is the lira’s exchange rate with the dollar, the world’s reserve currency, Hanke said in an analysis for Forbes magazine this week. Combined with the use of purchasing power parity, Turkey’s inflation rate is 49 percent, he said.
Turkish consumer price inflation surged to a 15-year high of 25.2 percent in October, official data showed, after a currency crisis ripped through the country’s economy. The rate of annual price increases slowed to 19.5 percent in April from 19.7 percent in March, the Turkish Statistical Institute said on Friday.
According to the article, inflation rates in Turkey reached a peak of 49 percent in May from a previous level of 25 percent in October of 2018, this could have many long term consequences and affect many different stakeholders.
Such high inflation can affect stakeholders in various ways. In the short run, borrowers will benefit greatly due to the decrease in the value of the currency as mentioned in the article. On the contrary, lenders will suffer inflation, this is because the money received will be worth less than what they lent out. Another stakeholder group that will be negatively affected by high inflation is savers, as their deposit losses value.
In the long run, high inflation could lead to decreased confidence in the economy, as prices levels fluctuate, consumers will be less willing to spend money while firms will be less inclined to make investments, slowing economic growth. Exports will also be greatly affected as high inflation means that a country’s exports will become more expensive to foreign countries, therefore damaging export competitiveness. Due to high rates of price fluctuations, firms must also continuously print new menus, price lists, price labels, and price advertisements, driving up their costs of production and lowering productivity and efficiency. Due to reduced spending, firms will lose a lot of sales due to reduced consumption, which will force them to lay off workers due to sticky wages. This spike in unemployment will put a burden on the economy as more tax revenue is spent on unemployment benefits. Unemployed workers will be even less likely to spend their already reduced income, repeating the cycle of companies making workers redundant, slowing economic growth and creating further economic uncertainty.