Turkey pledges to ‘break’ the rigidity of inflation expectations

Expectations are among the main factors to blame for Turkey’s rising inflation, its treasury and finance minister said on Tuesday, stressing that the country will ensure that the rigidity of expectations is “broken”.

Propelled by rising energy and food prices, Turkey’s annual inflation hits a 20-year high of almost 70%, according to official data. Consumer prices rose despite commodity tax cuts and government subsidies for utility bills to ease the burden on household budgets.

“The most important factor that has brought current inflation to these numbers is expectations,” Treasury and Finance Minister Nureddin Nebati told a regular meeting of the IRA general assembly. Turkish Association of Participatory Banks (TKBB) in Istanbul.

“We will together ensure that the rigidity of inflation expectations is broken in the period ahead.”

Longer-term inflation expectations are closely monitored by central banks to determine whether their policies are keeping the psychology of inflation at bay.

If expectations continue to rise, it would indicate a loss of confidence in the ability of monetary authorities to control inflation – and would make inflation itself harder to beat without painfully high and rapid interest rate hikes. .

“We are taking steps to ensure that price increases caused by deteriorating expectations and external factors are passed on to citizens to a minimum,” Nebati said, adding that they are “sensitive and determined” to fight the crisis. inflation.

“Now our goal is to correct expectations,” Nebati said. “We are going to deal with it by joining hands, by taking action together.”

His remarks follow his closed-door meetings with representatives from various industries over the past few days to deal with price swings.

Nebati reportedly asked local manufacturers and retailers to impose a temporary price freeze.

“We have made it clear that we oppose exorbitant practices. We are focused on an effort, which is to bring inflation under absolute control and ensure that it progresses in line with our objectives,” Nebati said on Tuesday.

In an attempt to further address concerns, the government last week promised provisions to boost the purchasing power of low-income citizens.

Soaring commodity prices and Russia’s invasion of Ukraine, which led to soaring gas, oil and grain prices, have worsened the situation in import-dependent Turkey.

Inflation has surged since last fall as the Turkish lira weakened after the central bank embarked on a 500 basis point easing cycle in September.

The government has said inflation will fall under its new economic program, which prioritizes low interest rates to boost production and exports in a bid to achieve a current account surplus.

At the end of last month, the Central Bank of the Republic of Turkey (CBRT) revised its inflation forecasts for this year and next upwards, mainly due to rising commodity prices and supply problems. ‘supply.

He had forecast annual inflation to peak at around 70% by June before dropping to nearly 43% by the end of the year and single digits by the end of 2024.

The central bank has held its benchmark rate steady at 14% in four meetings this year and said measures and policy measures will prioritize so-called liraization in the market.

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