INCREASE IN EXCHANGE RATES WILL AFFECT THE PRICES
Prof. Dr. İsmail Bulmuş, Lecturer at Izmir University of Economics, Department of International Trade and Finance, stated that the increase in exchange rates in the coming months would be noticed more clearly on the producer and consumer price indices. Prof. Dr. Bulmuş reviewed the Producer Price Index (PPI) and Consumer Price Index (CPI) announced by Turkish Statistical Institute (TÜİK) and stated, “We have yet to see the exchange rate volatility in Producer Price Index. Exchange rates experienced a change since June. 1 US$ increased from 1.80TL to 2.05 TL. The rates are reflected to prices gradually. The minimum period is 3 months, however, there is a reflection period ranging from 6 to 9 months. Therefore, this modest increase of PPI should not be deceptive. In the coming months, we will be observing a more serious volatility in PPI at a larger scale.”
Prof. Dr. Bulmuş reminded that annual PPI increase was 5.67 and CPI was 7.32, and while PPI summed up production costs, CPI on the other hand, summed up retail prices. Prof. Dr. Bulmuş also mentioned the fact that CPI being more than PPI reflected a demand pressure. “There is a demand pressure. The Central Bank wants to limit the increase in the loan volume of the banks by 20% for a long time, but it failed unfortunately. Increase in loans, compared to last year, reached up to some 30%. This means a demand pressure. This is such a high pressure that is related to current account deficit. It wants to control current account deficit as well. This called for a need to control the demand more, and also, a need for adjustment for credit cards. And, it is acting this way in order to reflect the positive effect on current account deficit and on inflation.”
“Turkey has low savings rates”
Prof. Dr. Bulmuş indicated that Turkish banks had a loan volume of approximately 1 million TL, and 1 TL of each 4TL loan went to the consumers. Prof. Dr. Bulmuş stated the following:
“These include items as housing loans, car loans, credit cards, etc. 25% of total loans going to consumers is not a good thing for a developing country such as Turkey. Turkey has very low savings rate, which is about 11%. This indicates a growth potential of 1.5 % to 2 % more or less for Turkey. This means 70 years need to pass in order for a family income to double up and household income to increase about 1%. It is such a long and slow process.”
‘We should not exceed 5%’
Prof. Dr. Bulmuş stated that the main task of Central Bank was to maintain price stability, and it focused on inflation targeting for many years. “There are still predictions but they did not come true up until today. This questions the credibility of Central Bank a bit. As a result, Central Bank is an institution that manages the expectations. It needs to act this way somewhat. I believe that we will be experiencing the effects of the serious increase in exchange rates more in the coming months. Turkey lived under high inflation for 30 years. Inflation in single digit is a great accomplishment. But we still cannot say that we reached our goal yet. Reasonable inflation rate for Turkey should be 3% to 5% annually. We can say that exceeding 5% would have negative impact on the economy,” remarked Prof. Dr. Bulmuş.
