Turkish private sector agrees to slash retail prices to support government’s “all-out war” on inflation

Turkish private sector agrees to slash retail prices to support government’s “all-out war” on inflation
By Akin Nazli in Belgrade October 9, 2018

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      

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