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Feb 21 2019

Erdoğan’s cheap food stalls will slow Turkish inflation - analysis

The Turkish government is selling cheap fruit and vegetables in city squares in Istanbul and the capital Ankara, and its efforts will help slow headline inflation in February, Bloomberg reported citing a Turkish official familiar with the figures.

While the price of produce at the special municipality-run stores isn’t counted when official inflation data is compiled, supermarkets are following the government’s lead, slashing prices on key products, Bloomberg’s Çağan Koç reported.

Turkish food inflation surged by 31 percent annually in January, preventing a slowdown in overall consumer price inflation, which edged up to 20.4 percent last month from 20.3 percent in December. That prompted the government, facing nationwide local elections on March 31, to open the stores, which charge lower prices but put limits on sales to each individual buyer.

In the first week of the government’s campaign, more than 3,200 tonnes of vegetables were sold in Istanbul and Ankara, Turkey’s two biggest cities, Koç said.

Late last year, business groups issued a list of products that companies should reduce in price to help the government slow inflation, which had surged to 25.2 percent in October, the highest level in 15 years. The list exactly matched items found in Turkey’s so-called “inflation basket”, which is used by the Turkish Statistical Institute to calculate price increases.

Turkish supermarkets appear to be focusing their price cuts on food products that carry a larger weight in inflation calculations, according to shopping lists published on their websites.

Analysts and businessmen, however, are warning that the government’s measures are short-term, patchwork steps that do not resolve inherent structural problems in the food supply chain.

While Erdoğan has put the blame for food inflation squarely at the door of so-called profiteers and “food terrorists”, the central bank, in its report on January inflation earlier this month, said bad weather had contributed to the rise in prices. However, Treasury and Finance Minister Berat Albayrak, Erdoğan’s son-in-law, said bad weather only had a marginal effect.

Turkey “is experiencing high food inflation due to mistakes made in the past,” said Tüncay Özilhan, head of High Advisory Council of the Turkish Industry & Business Association (TÜSİAD), which represents Turkey’s largest companies, according to Bloomberg.

Mehmet Şimşek, Albayrak’s predecessor, sought to carry out structural reforms to slow food price inflation in the years leading up to a currency crisis last year. Those efforts appear to have had little effect.

The government has now vowed to overhaul the food industry, cutting out middlemen and introducing new means of distribution from farms.

The crackdown on soaring prices may make a rate cut by Turkey’s central bank more likely. Still, Governor Murat Çetinkaya says price growth across Turkey’s economy must slow down “decisively” before the bank reduces its benchmark rate of 24 percent, which it has held steady since September.

JPMorgan expects the central bank to cut its benchmark rate by 650 basis points in 2019, Bloomberg said.

“If newly introduced government programs -- such as government vegetable stalls -- prove successful, the fall in inflation could be steeper, opening the door for more rate cuts,” said Yarkin Cebeci, an economist at JPMorgan.