The Turkish Lira continues to lose value against the dollar, now hovering over 30 TL, with double-digit inflation and high cost of living challenging residents. Economist Mahfi Eğilmez indicates a new economic phase, but what does it mean?
While the U.S. aims to reduce inflation to 2%, the impact is still significant, and developing nations like Turkey have experienced persistent price increases. Eğilmez discusses the emergence of different inflation patterns globally.
One such pattern is ‘Skimpflation,’ where products retain their price but see a reduction in content or quality, essentially selling less valuable goods for the same price. This can be seen as a deceptive period of neutral inflation, where producers cut costs to maintain profit margins without raising prices, as illustrated by the example of butter mixed with margarine yet sold at the original price.
Similarly, ‘Shrinkflation’ involves maintaining the price while reducing the quantity or size of the product. This has been a topic of social media discussions, such as the reduced volume in packaged dairy products or slight decreases in the weight of biscuits.
Both scenarios create significant disadvantages for consumers, as sellers maintain similar revenues while official inflation figures appear to decrease. This results in a detrimental environment where workers and pensioners struggle to receive fair compensation for their labor, effectively paying the same for less.
Eğilmez concludes that to combat inflation effectively, policymakers must acknowledge the ‘real inflation’ and develop strategies accordingly. Without this, simply raising interest rates and indirect taxes will not control inflation.