Turkey only takes 5th place: Inflation is particularly severe in these countries

Turkey only takes 5th place
Inflation is particularly severe in these countries

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In Germany, inflation is approaching the green zone. Elsewhere the price increase is extraordinarily high. Now Argentina is reporting a figure that is reminiscent of the times of hyperinflation.

In Europe and the USA inflation is on the decline. For both the Eurozone and the USA, the target of two percent is within sight, at which the central banks see their goal of price stability having been achieved. Inflation is a long way from the record levels reached in many countries after the Russian invasion of Ukraine. In some countries, however, it is chronic – prices there have been rising rapidly for years.

The current leader is Argentina. In January, the general price level was 254 percent higher than a year earlier. The country has thus achieved its highest inflation rate since the hyperinflation of 1991. The second largest economy in South America suffers from a bloated state apparatus, low industrial productivity and a large shadow economy that deprives the state of a lot of tax revenue.

The new ultra-liberal President Javier Milei wants to get Argentina back on track with a radical austerity program. The government sharply devalued the national currency, the peso, and announced cuts to subsidies on gas, water, electricity and public transport – which is likely to further drive up prices.

Lebanon suffers from the second worst inflation. The currency is in free fall because of the economic crisis. The price increase is dramatic, it has reached 192 percent.

According to the World Bank, inflation in Venezuela is 107 percent. While that is very high, it is miles away from the rates of hyperinflation that hit the country just a few years ago. In 2018, the International Monetary Fund (IMF) described the situation in Venezuela as “similar to Germany in 1923 or Zimbabwe in the late 2000s” – and symbolically set the expected inflation at one million percent.

Erdogan is pulling the emergency brake

Turkey is also at the forefront. Turkish consumer prices rose significantly in January following the sharp increase in the minimum wage; they were around 65 percent higher than in the same month last year.

The central bank is trying to get inflation under control by sharply raising interest rates. The key interest rate is currently 45 percent. After currency devaluation in Turkey reached levels of over 80 percent in 2022, inflation fell noticeably over the course of the past year. At times inflation rates of less than 40 percent were reached before inflation increased again since last summer.

The inflation problem in Turkey is largely home-made: Until his re-election last year, President Recep Tayyip Erdogan had implemented a loose monetary policy at the central bank – which is only formally independent – even though inflation threatened to get out of control.

Erdogan describes himself as an “enemy of interest rates”, sees interest rates as the “mother of all evil” and claims, contrary to past practical experience and economic theory, that low interest rates ensure low inflation and high interest rates ensure high inflation.

To enforce this unorthodox monetary policy, Erdogan fired several central bank chiefs and finance ministers until he found a central bank governor who would fulfill his desire for low interest rates. In between, the head of the statistics agency had to leave. Erdogan had accused him of exaggerating the extent of inflation.

The loose monetary policy fueled inflation and the currency crisis, but at the same time ensured economic growth – a key reason for Erdogan’s popularity among his voters. A few days after the start of his third term in office, Erdogan pulled the emergency monetary brake last summer and appointed Hafize Gaye Erkan as head of the central bank. It follows economic theory and gradually increased the key interest rate from 8.5 percent to the current level. She resigned after just eight months in office. Her successor Fatih Karahan wants to continue the restrictive monetary policy.

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