inflation, rising prices

Turkish government plans to raise wages and cut taxes to fight inflation

The government prepares aid for homes and families in the face of rising prices, while inflation could exceed 20% in October.

The Turkish government is planning to raise wages and cut taxes to combat the effects of inflation on the most vulnerable households and families with the lowest incomes, according to some media citing sources related to the alleged plan.

The information, disclosed to the press on condition of anonymity because officials were not authorised to make public statements, indicate that the plan would seek to alleviate the economic pressure on households with lower incomes, at a time when prices continue to grow, and with inflation hovering around 20%.

According to the news published in the press, one of the options being considered would be to increase the minimum wage above inflation, as well as raise the salaries of some public servants. Although for now, the Finance Ministry of Turkey has not commented on this information, the Turkish Minister of Family and Social Services, Derya Yanık, announced yesterday a fund of 2,5 billion liras – about 226 million euros – in aid to pay electricity and fuel costs this coming winter.

Despite this inflationary pressure, the Turkish Central Bank (TCMB) surprised the markets two weeks ago with a drastic cut in interest rates of 200 basis points, down to 16%, which caused a new collapse of the Turkish lira. Paradoxically, the governor of the entity, Şahap Kavcıoğlu, declared last week that the latest rate cuts responded to an analysis according to which inflationary pressures in the Turkish economy are temporary, announcing more cuts in the next two months.

Everything indicates that plans to raise wages and cut taxes to combat inflation may not be enough to stop the inflationary spiral that the economy of the Eurasian country suffers. In the absence of official data, inflation in October could have exceeded the 20% barrier; last week, the Central Bank was forced to review its inflation forecasts for the next 3 years, increasing from 14.1% to 18.4% by the end of 2021, from 7.8% to 11.8% by 2022, and from 5% to 7% in 2023.