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 |