In Turkey and Hungary, inflation gallops: 48.7% over one year for the first, +7.4% over one year for the second. A choice for the Turks, who are betting on a weak pound to stimulate exports and support growth, but a difficult situation for the Hungarians, whose government has decided to cap the prices of certain basic foodstuffs.
In Turkey, an economic and political bet
The figures for January announced on Thursday February 3 place the rise in consumer prices at 48.7% over one year. These figures are all the more worrying as they are official figures, disputed by the opposition and economists. A few minutes before the announcement of the official figures, the Inflation Research Group, a group of independent economists, published its own estimates as every month, evaluating the rise in prices at 115% over one year. The opposition accuses the national statistics agency of underestimating inflation under political pressure. And for good reason: a few days ago, President Erdogan dismissed the head of this institution, which last month published an inflation rate of 36% over one year, which was already a record since 2002 and the rise to power of Recep Tayyip Erdogan.
For the Turkish population, it is an almost daily purchasing power shock and the inhabitants of Istanbul, the economic capital, do not even need to look at the labels to feel how high inflation is and how how much people suffer from it: they almost only talk about it. Some merchants even feel compelled to justify themselves to their customers, detailing the increase in their costs to explain the increase in their prices. Starting with those of energy: electricity prices jumped 130% for most households on 1 January.
At the roots of this inflation, there is a double economic and political bet: if prices have increased so much, it is largely due to the effect of the fall of the Turkish lira, itself due to monetary policy choices Of the president. Since September, Receive Tayyip Erdogan has forced the central bank – of which he has sacked three governors in two years – to successive cuts in its main rate. With each drop, the pound unscrewed, losing almost 50% of its value against the dollar in one year. Receive Tayyip Erdogan is betting on a weak pound to boost exports and support growth. Except that in an economy dependent on imports, the fall of the currency leads to a rise in the prices of all imported products – energy and raw materials included.
The government says to the Turks:“The start of the year is going to be complicated, in the meantime, we’re giving you a boost: the minimum wage has just increased by 50%. But you’ll see, by the summer, inflation will have already slow motion…” It is an economic bet, which is also a political bet: the president’s popularity rating is at its lowest and his model must therefore prove itself before the elections, scheduled in less than a year and a half.
Viktor Orban decides to cap certain prices
In Hungary, to fight against galloping inflation, +7.4% over one year, the government has decided to cap the prices of certain basic foodstuffs: flour, sugar, sunflower oil, white and chicken carcass, and pork roll. These products must be sold at the price they were on October 15th. But not more expensive. And this, for three months, until May 1st. The government wants to try to stem inflation, which for some products is in double digits: last October, sunflower oil had increased by 33% over one year!
Agota, a former engineer, earns a small pension, around 400 euros. Despite the freezing winter, she does her shopping in summer shoes, as it is her only pair of shoes. She applauds this government measure: “It’s completely normal for a government to do that. Look how expensive life is in Western Europe; here we are better off. Free pricing is good for the rich, not for the poor. others !” A few weeks before the April 3 legislative elections, the price freeze is a gift for young retirees, who form the hard core of Viktor Orban’s electorate. This measure appeals to some Hungarians, but for others it is not enough, as this retiree explains: “It’s misleading, in three months, prices will rise again! And this does not concern cottage cheese, meat, bread… Some products have increased by 20%! While the increase in pensions is only 5%. Once I’ve paid my medicine and energy bills, I only have a little left over to eat. We can’t live with that!”
It is not the shops and supermarkets that will necessarily lose the most money: the measure is deceptive. Indeed, since October 15, some products have increased little. Some, like pork, are even cheaper. And then, if supermarkets are forced to lower the prices of certain items, they will make up for it by swinging the labels on other products. This will not really increase the purchasing power of Hungarians. But it is an excellent communication operation. In all supermarkets, we see a poster with the government slogan printed in red: “Stop the prices.” A clever way to force businesses to advertise for the government.