Turkey has signed up its private sector in the country’s fight against roaring inflation—businesses have agreed to voluntarily cut 10% from prices for two months, while banks will apply a 10% discount to interest rates for loans provided after August 1, Turkey’s Treasury and Finance Minister Berat Albayrak announced on October 9 at an Istanbul press conference.

Albayrak, who is also Turkish President Recep Tayyip Erdogan’s son-in-law, unveiled the details of the government’s “All-Out War on Inflation Programme”, a long-anticipated measure being brought in amid a currency crisis that has left the Turkish lira (TRY) towards 40% weaker against the dollar in the year to date.

The voluntary discount will be employed for all goods in Turkey’s consumer price inflation basket, Albayrak said, but he did not specify the list of products that will be subject to price cuts (See the table below for the full list of items in the Turkish Statistical Institute’s inflation basket)

“Problem—how to close the gap between producer price inflation of 45% and consumer price inflation of 24%. Answer … is not to force a cut in retail prices #Turkey … but at least it is voluntary,” Charlie Robertson of Renaissance Capital said in a tweet.

“Better, more orthodox policy would be a much better option. Credible and orthodox central bank policy to help rein in inflation expectations,” Timothy Ash of Bluebay Asset Management said in an e-mailed comment after Albayrak’s October 9 announcement.

“Interesting reaction of the market on @BeratAlbayrak campaign to curb inflation. Asking companies to postpone price adjustment sounds frantic and hurt corp profits (sharp drop of lira?). But: if you don't want to increase rates these measures are the only left (recovery of lira?),” Nora Neuteboom of ABN Amro Bank said in a tweet.

The Turkish Trade Ministry on October 8 said it had asked 114 companies to explain price hikes that officials had determined were excessive. The ministry said its inspectors had scrutinised 3,974 companies and 69,200 products nationwide. Its investigation did not aim to intervene against the free market system, but simply aimed to prevent the occurrence of injustices caused by unjust price hikes, it added.

Erdogan has made it clear that Turkey will fine any “opportunists” who raise prices to an extent that takes unfair advantage of the situation with inflation and the lira. The president has also called on Turks to report any stores that they suspect have gone ahead with unusual price hikes.

A special hotline has been opened for the reporting of unusual price hikes with Albayrak encouraging citizens to report “speculation, opportunism and stockpiling”.

‘Toothpaste police’
Turkish police, meanwhile, have been fighting inflation by checking toothpaste prices at grocery stores, Bloomberg reported on October 9. Their on-the-spot inspections started soon after Erdogan’s September 14 appeal for authorities to “work out control mechanisms” to use in relation to price hikes, according to the news agency.

Turkish daily reported on October 6 that the deputy director in charge of the country’s inflation data was dismissed from his post at the Turkish Statistical Institute (TUIK) on October 3, the same day the institute announced that Turkey’s inflation had leapt to a 15-year-high of 24.5%, a level that came as a shock to the markets.

TUIK confirmed on October 7 in a written statement that Tasti was dismissed but it added that the move was an “administrative decision” and would have no impact on its inflation data releases which, it said, are calculated according to EU standards.

The government will accelerate VAT return payments through the end of this year to support firms, Albayrak also said on October 9. The public sector will be driving force of the programme in coordination with the central bank, banking watchdog BDDK and banking association TBB, according to Albayrak.

A website and social media campaign has been launched in support of the “All-Out War on Inflation Programme”.

The Dogus Group conglomerate, the Turkish Independent Industrialists and Businesspeople Association (MUSIAD), the Turkish Union of Chambers and Commodity Exchanges (TOBB), fashion retailer Boyner and leading local retail chains have pledged to support the programme, according to the website.

Sabanci Holding, one of the country’s largest conglomerates, also issued an announcement to support the upcoming price cuts.

Local bankers have also spoken up in support of the programme. Umit Leblebici, general manager of TEB Bank, told Reuters that interest rates hit extreme levels of 42-43% in August but fell to 37-38% levels in September, and were on course for around a 10% decline.

Huseyin Aydin, head of TBB, said at a conference that the banking sector would continue to provide loans to the economy and that it will continue to contribute to lowering nominal interest rates.

A 10% price discount is also to be applied by the state-controlled Meat and Milk Board, Agriculture Minister Bekir Pakdemirli said. Gubre Fabrikalari (Gubretas), one of Turkey’s largest fertiliser producers, which is majority-owned by the Central Union of Turkish Agricultural Credit Cooperatives, is also set to cut its prices by a tenth, according to Pakdemirli.

Business world ‘stands ready’
The business world stands ready to do its duty in the fight against inflation, remarked Erol Bilecik, chairman of the Turkish Industry and Business Association (TUSIAD). He added that the main steps that should be pursued in the battle against rising prices are a tight monetary policy and a supportive fiscal policy.

On a day during which ministers sought to rouse spirits in the struggle against Turkey’s economic turmoil—the fear is that the currency crisis could bring on a banking crisis given the possibly herculean task Turkey will face in paying back forex-denominated loans—Industry and Technology Minister Mustafa Varank announced a set of incentives to finance small and medium sized enterprises.

Mustafa Songur, chairman of the Turkish Food Retailers Association, said on October 9 at a congress that government incentives would help food retailers deal with the gap between consumer and producer price inflation, and that the government should avoid interventions that would hurt free trade. Members of the association produce a combined annual turnover of TRY150bn at about 40,000 sales points and employ a total of 415,000 people.

Given the shock caused by the September inflation data, pressure is again mounting on the central bank to push up interest rates. Its monetary policy committee (MPC) will meet on October 25. At the MPC’s last meeting, on September 13, the rate-setters brought in a huge interest rate hike of 625 basis points. However, inflation is now running ahead of the benchmark interest rate of 24%.

Programme is disappointing: Capital
“The latest programme from Berat Albayrak [once again] disappoints hopes that the central bank’s aggressive rate hike last month would be backed up by a broader improvement in domestic economic policymaking,” Jason Tuvey of Capital Economics told the Financial Times.

Capital Economics did not expect a further rate hike this year while it forecast that the lira would stand at 5.50 to the USD at the end of 2018 and the benchmark BIST-100 Istanbul stock exchange index would be at 88,100.

The BIST-100 was up 0.67% d/d to 96,732 at the close of trade on October 9. The share price of hard discount retailer BIM was down 1.06%, while shares of food and staples retailer Sok Marketler were up 2.82%. Looking at other supermarket retailers, Carrefoursa shares were up 0.28%, while Migros’ shares were flat.

The TRY climbed to as strong as 6.1585 against the USD following Albayrak’s speech. It was trading at 6.0948, stronger by 0.41% d/d as of 23:55 local time.

At his press conference, Albayrak claimed the volatility in the exchange rate is over.

Based on the unveiled programme, the government will not hike natural gas and electricity prices before the end of 2018 and it will support businesses to avoid layoffs, Albayrak added.

On October 1, state-owned pipeline operator Botas hiked natural gas prices for household users by 9% and for industry by 18.5%, while energy market watchdog EPDK hiked electricity prices for household users by 8% and for industry by 18%.

Natural gas and electricity prices for household users have been hiked by a cumulative 30% since the end of July and for industry by 48%.

The weight of electricity in the consumer price inflation basket is 2.39% while for natural gas it is 1.44%.

“Inflation—which is already at a 15-year high—looks set to rise further. Political pressure on the central bank means that additional rate hikes are unlikely, but monetary policy will remain tight. And while the banking sector should avoid a full-blown crisis, credit conditions will become much more difficult,” Capital Economics said on October 9 in a research note.

Labour Minister Zehra Zumrıt Selcuk was present at the inflation programme conference along with Capital Markets Board (SPK) president Ali Fuat Taskesenlioglu, Borsa Istanbul board chairman Erisah Arican, Banking Regulation and Supervision Agency (BDDK) president Mehmet Ali Akben, MUSIAD president Abdurrahman Kaan, Koc Holding board chairman Omer Koc, Demiroren Holding Board chairman Yildirim Demiroren, Zorlu Holding board chairman Ahmet Nazif Zorlu, Anadolu Group board chairman Tuncay Ozilhan, Dogus Group board chairman Ferit Sahenk, Eczacibasi Holding board chairman Bulent Eczacibasi, Alarko Holding board chairman Leyla Alaton, Boyner Group CEO Cem Boyner, Akbank board chairman Suzan Sabanci, Isbank general manager Adnan Bali and Akbank general manager Hakan Binbasgil, according to Daily Sabah.

 

Full List of Items Included in TUIK's Inflation Basket
Food and Non-Alcoholic Beverages	Alcoholic Beverages and Tobacco	Housing, Water, Electricity, Gas and Other Fuels	Communications
Rice	Raki	Actual rent	Payment for delivery of parcell
Wheat flour	Whisky	Expenditure on wall covering (die)	Phone machine
Baby food	Wine	Expenditure on floor covering (wall tiling)	Spare parts for telehone (SIM card, battery)
Boiled and pounded wheat	Beer	Windowpane (PVC)	Repair of phone machines
Bread	Cigarettes	Plumbing items	Fee for phone calls
Biscuit	Clothing and Footwear	Water fee	Fee for cellular phone calls
Cracker	Cotton fabric	Electricity fee	Subscription costs of telephone
Wafer	Mixture fabrics	Natural gas	Fee for internet connection
Cream-cake and patisserie	Men's coat	Natural gas subscription fee	Recreation and Culture
Cake	Men's anorak jacket	Tube gas	Television
Dessert	Men's suit	Coal price	Camera
Thin dough	Men's jacket	Firewood price	PC and Laptop
Macaroni	Men's trousers	Furnishings, Household Equipment, Routine Maintenance of the House	PC equipments
Wermicelli	Men's pullover	Table	Tablet (PC)
Cereal	Men's shirt	Chair	Maintenance and repairs for audio-visiual equipments- equipment and service
Veal	Men's sweatshirt	Bedroom furniture	Maintenance and repairs for audio-visiual equipments-service
Lamb	Men's t-shirt	Single bed	Music equipment (flute)
Poultry	Men's tracksuit	Double bed	Children's toys
Offal	Men's pijamas	Bed base	Game Console
Garlic-flavored sausage	Men's underwear	Teenager room furniture	Items for sport and recreation (soccer ball)
Sausage	Men's socks	Living room furniture	Veterinary fee
Salami	Women's raincoat	Dining room furniture	Fee paid for watching sport games (football)
Fresh fish	Women's coat	Sofa	Renting of mini football fields
Milk	Dress (single piece)	Nesting table	Fee paid for having pictures taken
Yoghurt	Women's jacket	Carpet	Cable TV service fee
White cheese	Skirt	Curtain	Cinema
Kasar cheese	Women's trousers	Roller curtain	Theather
Tulum cheese	Women's cardigan	Tulle	Other recreational and cultural services (Internet cafe)
Cream cheese	Women's pullover	Bed cover	Games of Chance
Egg	Women's shirt	Quilt	Children books
Butter	Women's t-shirt	Blanket	Test book
Margarine	Women's tracksuit	Bed pique set	Other books
Olive oil	Women's pijamas	Bed clothes	Newspapers
Sun-flower oil	Women's underwear	Pillow	Magazines
Corn oil	Women's socks	Towel	Notebook
Orange	Children's coat	Refrigerator	Pencil
Grape	Children's trousers	Refrigerator No-Frost	Box of coloured pencils for painting
Pear	Children's pullover	Freezer	Stationery papers
Quince	Children's shirt	Washing machine	Other stationery
Strawberry	Children's sweatshirt	Dish washing machine	Package holidays weekend
Apple	Children's t-shirt	Oven	Package holidays for one week and more
Plum	Children's tracksuit	Furnace with gas	Package holidays (abroad)
Water melon	Children's pijamas	Furnace with oven	The pilgrimage to Mecca
Melon	Children's underwear	Air conditioner	Umrah fee
Apricot	Children's socks	Stove	Education
Cherry	Overalls for baby	Flash heaters	Kindergarten fees
Kiwi	Baby's pyjamas	Combi boiler	Private school fees (primary)
Lemon	Baby's underwear	Aspirator	Private school fees (secondary)
Tangarine	Knitting wool	Vacuum cleaner	Private university fee
Banana	Tie	Blender	University fee
Pomegranate	Belt	Toster	Courses for non-determined education level
Peach	Scarf	Water heaters	Hotels, Cafes and Restaurants
Almond	Suit Repair	Iron	Soups
Walnut (without shells)	Dry cleaning	Repair of household appliances	Cold meals
Hazelnut (without shells)	Men's footwear	Glass household utentsils	Broiled meat (kebap)
Pistachio	Men's boots	Porcelain household utensils	Flat bread (pide, lahmacun)
Peanuts	Men's sport shoes	Steel kitchen utentils	Steak tartar a la turca
Roasted chick-pea	Women's footwear	Other steel kitchen utentils	Doner in bread
Sun flower seed	Women's boots (with strings)	Teflon household utentils	Hamburger and sandwiches
Pumpkin seed	Women's sport shoes	Plastic household utentils	Pizza
Raisin	Slipper for woman	Other non-electrical appliances	Patisserie products served
Dried apricot	Children's footwear	Battery	Desserts in restaurants
Sweet green pepper	Children's boots	Electric bulb	Hot drinks served
Stuff pepper	Children's sport shoes	Door fittings	Cold drinks served
Green pepper	Men's footwear repair	Stove equipments	Ayran served
Tomato	Women's footwear repair	Detergents (for laundry)	Raki and beer served
Green bean		Dishwasher detergents	Hotel charge
Carrot		Disinfectants and insecticidies	Accomodations services of boarding universities
Spinach		Articles for cleaning	Miscellaneous Goods and Services
Zucchini		Sponge for dish washing	Men's hairdressing
Cauliflower		Aluminium and strech foil	Women's hairdressing
Onion		Kitchen paper and napkins	Manicures and beauty service
Cabbage		Maid and cleaners' fee	Hair care appliances
Red cabbage		Carpet and other floor coverings cleanings	Shaving articles
Mushroom		Health	Articles for dental hygiene
Lettuce		Medicines	Toilet soap
Parsley		Other health items	Bath soap
Eggplant		Corrective eye-glasses	Perfume
Leek		Contact lense	Deodorants
Cucumber		Therapeutic appliances	Cologne
Garlic		Fees paid to specialist doctor	Body cream and lotion
Radish		Dentist fee (Pulling)	Make-up products
Green onion		Dentist fee (Filling)	Hair care products
Potato		X-ray fee	Toilet paper
Dry bean		Ultrasound fee	Paper tissue
Chickpea		MR fee	Baby napkin
Lentils		Laboratory analysis fee	Hygiene pad for women
Other pulse		Hospital bed fee	Jewellery (Gold)
Canned  vegetables		Surgical operation fee	Travel goods
Tomato sauce		Natural childbirth fee	School bag
Olive		Cesarean section fee	Umbrella
Chips and appetizers		Transport	Baby carriage and car seat
Granulated sugar		Automobile (Diesel)	Créche and day-care center
Cube sugar		Automobile (Gasoline)	Insurance connected with fire, burglary and natural disasters
Jam		Scooter	Insurance connected with health
Honey		Bicycle	Insurance connected with transport
Grape molasses		Spare parts and accessories	Banking service
Halvah		Products for maintanence of transport equipments	Fees for legal service
Tablet of chocolate		Petrol	Fees for transportation vehicle
Chocolate cream		Liquid petroleum gas (LPG)	Attorney fee
Turkish delight		Diesel	Payment for photocopies
Chewing gum		Motor oil
Holiday candy		Maintenance and repairs equipment and service for vehicle
Ice-cream		Maintenance and repairs service for vehicle
Condiment-spices		Hire of car fee
Salt		Car park fee
Baking powder		Highway toll
Vinegar		Bridge fare
Catchup		Driver course fare
Mayonnaise		Train fare (inter-urban)
Sesame oil		Underground fare
Packaged soup		Tram fare
Pudding		Train fare (intra-urban)
Turkish Coffee		City bus fare(inter-urban)
Ready-made coffee		Mini bus fare
Tea		Transportation service
Herbal tea		Taxi fare
Cocoa		Bus fare (intra-urban)
Cocoa beverages		Airplane fare
Water		Boat fare
Mineral  water		Cargo fee
Carbonated fruity beverages		Transportation fee
Coke
İce Tea
Ayran
Fruit Juice
Source: TUIK