Inflation concerns in Turkey
Erdogan lowers tax on staple foods
2/12/2022, 6:46 p.m
Turkey is groaning under the rapidly rising inflation rate. To counteract this, President Erdogan is drastically reducing VAT on staple foods. At the same time he wants to appease the population.
Turkish President Recep Tayyip Erdogan has announced a reduction in VAT on staple foods from eight to one percent in view of the high inflation in his country. He expects prices for rice, meat, fruit and vegetables, dairy products and eggs to fall by 7 percent from Monday, Erdogan said in a televised speech. The tax on flour and bread is already one percent. Inflation in Turkey had recently accelerated from an extremely high level. According to official figures, consumer prices rose by 48.7 percent in January compared to the same month last year.
The country is struggling with a currency crisis. The lira continues to lose value, which makes imported goods more expensive. At the turn of the year, energy prices had exploded. Electricity prices for households were raised by around 50 percent. Rising energy prices are a problem worldwide. In Turkey, however, there is also the fact that President Erdogan is insisting on interest rate cuts despite high inflation – this is further fueling inflation.
Food and transport had also become increasingly expensive recently. In view of the situation in the country, people’s displeasure is also growing. There have been minor protests recently. The largest opposition party, the CHP, warned on Wednesday that many people would become poor.
Foreign investors are also holding back. Rating agency Fitch had given Turkey a thumbs-up, downgrading its long-term debt rating to “B+” from “BB-“. As a result, Turkey is slipping deeper and deeper into the junk area, in which investments are considered highly speculative. The US agency said the outlook remains “negative”. There is therefore a risk of another downgrade.