Now that hyperinflation has arrived in Turkey in the post-crisis economic recovery, there are many ways to describe the government in Ankara: unorthodox, incompetent, and disastrous. President Recep Tayyip Erdoğan and his minions have become so desperate to save face that they will refuse to change course, try to plug the holes in the sinking ship, and rely on conventional means to survive. While Erdoğanomics was a worthwhile experiment to witness what authoritarian decision-making looks like in real time, millions of people have suffered and will continue to from these big-government and nonsensical policies that have ushered in a new reckoning. The domino pieces are falling one by one, and it appears the next step is an economic collapse.
Turkey Goes Weimar Republic?
Turkish President Tayyip Erdogan (Photo by Eduardo Munoz-Pool/Getty Images)
Many wondered what hyperinflation looks like in the digital economy, especially in a somewhat developed market like Turkey. Well, the world is being offered a glimpse into what skyrocketing inflation would be like if it happened in Greece, Italy, Mexico, or Cambodia. And it is terrifying.
According to the Turkish Statistical Institute (TSI), the annual inflation rate exceeded 36% in December, topping the market estimate of 30.6%. This is also up from the previous reading of 21.31%. The consumer price index (CPI) climbed 13.58%, higher than the median expectation of 9% on a month-over-month basis. This is also up from 3.51% in the previous month.
The monthly snapshot of the cost of living showed that inflation was broad-based, with nearly every component more expensive. That said, increasing consumer prices were driven by food (43%), housing and utilities (29%), and apparel (20%).
Producer prices have also soared, climbing 80% year-over-year in December, up from 54.62% in November. On a monthly representation, the producer price index (PPI) advanced 19.08%, up from 9.99%. Moreover, costs spiked across the board: Energy increased 123%, durable consumer goods jumped 46%, and capital goods rose 51%.
(Photo by Resul Kaboglu/NurPhoto via Getty Images)
In addition to enormous price inflation, the lira cratered about 80% last year and was the worst-performing currency against the U.S. dollar and the euro. The lira is showing signs of life again after the government guaranteed cash deposits should they lose value amid fluctuations in the foreign exchange market. But the consensus among market analysts is that all hope is lost.
Erdoğan has gone through a handful of central bank governors. Despite bringing credibility back to the institution and to the lira, and reviving the nation’s foreign exchange reserves, Naci Ağba was terminated. Instead, the president installed Şahap Kavcıoğlu to serve as a yes man and carry out Erdogan’s vision of monetary policy.
But what is the president’s doctrine anyway? His supposition is that cutting interest rates will stimulate the economy, effectively fighting inflation and reinstalling legitimacy into the Turkish lira. This has prompted economists and market analysts to laugh at Erdoğan because it defies all orthodoxy. Although the economy is showing signs of growth, it might not matter if the poor and middle-class can hardly afford the bare necessities amid a crumbling lira and double-digit inflation. And, according to Erdoğan, the population of 85 million will witness the same conditions in 2022.
In his New Year’s message, Erdoğan told the country:
“We have started a historic transformation in the economy by launching a process of growth in our country on the basis of investment, employment, production, exporting and current account surplus. We determinedly maintain this economic transformation, for which we have laid the groundwork with our projects and services across Turkey over the past 19 years.
“It became crystal clear in 2021 that the system of prosperity and security the developed countries established in the aftermath of the Second World War could no longer keep functioning in the face of the plight, misery, and the objection of the rest of the humanity.”
However, many people suffering from the consequences of Erdoğanomics are not buying what the president is selling, with thousands taking to the streets of Istanbul last month. Still, based on the propaganda being emitted from the pro-state media, everything is kebabs and meatballs in Turkey as some outlets attempt to gaslight the public.
Will Others See Hyperinflation?
Despite central banks worldwide creating tens of trillions of dollars throughout the coronavirus pandemic, it is unlikely that the United States or Great Britain would witness a bout of hyperinflation. This is not to say that it is impossible, considering how much debt these countries have accumulated and how much money was manufactured out of thin air, even prior to the once-in-a-century health crisis. Indeed, in a world where most consumers rarely see their hard-earned dollars, euros, or lira as they turn into digits on a computer, the future of inflation or hyperinflation is somewhat different than, let’s say, the Weimar Republic. But, no matter what, the end result is the same: a debased currency and surging prices everywhere, leaving behind wanton economic destruction.
~ Read more from Andrew Moran.
