Turkish shops asked to drop prices in 'war on inflation'

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Turkey's Finance Minister Berat Albayrak announced on Tuesday plans to tackle the country's high rate of inflation, including a call on the private sector to voluntarily drop retail prices by 10 percent.

Albayrak described his strategy as a declaration of "all-out war" on inflation, as he called on shops and small businesses to "join a national struggle" against rising prices.

In return for reducing prices by 10 percent until the end of the year, the finance minister said banks would offer 10 percent reductions on interest rates over that same period, without giving any further details.

Turkish media reported that several major supermarket brands had already agreed to reduce prices according to the plan, but the extent to which private businesses will have to apply the 10 percent reduction has not been made clear.

On September 14, President Recep Tayyip Erdogan called on authorities to "work out control mechanisms" against inflation, with police officers being employed to check prices of consumer goods.

Municipal police officers make an unannounced visit to check food prices at a local supermarket in the Gungoren District of Istanbul, Turkey, Oct. 5, 2018. /VCG Photo

The Turkish Trade Ministry on Monday confirmed tens of thousands of products had been checked nationwide for unfair price hikes, with 114 companies asked to respond to accusations of price-gougeing.

Albayrak's policy move received a lukewarm response among economists, with many Turkish and international experts concerned over the government's refusal to hike interest rates to stem inflation.

Talking to Bloomberg, Erinc Yeldan of Bilkent University in Ankara said "inflation cannot be fought against through law enforcement."

Piotr Matys of Rabobank told Reuters "what is missing is structural reform.... What we really need is a long-term solution to prevent food prices from rising again."

Paul McNamara, a fund manager at GAM, said in a comment to the Financial Times that Albayrak's plan was "absolutely nuts," adding "the only way of getting inflation down is to get the currency to appreciate again or undergo the sort of recession that pulls down wages and pulls down the demand side."

Inflation hit 25 percent in September – it's the highest level in 15 years, with the International Monetary Fund sharply reducing its 2019 outlook for Turkish economic growth from 4.0 to 0.4 percent on Tuesday.

Turkey's lira has fallen by 38 percent this year, with the country's central bank lifting interest rates to 24 percent last month amid intense pressure on the currency.

However, Erdogan has strongly resisted against interest rate rises on numerous occasions, calling them "the mother and father of all evil."

(Cover: Turkish Finance Minister Berat Albayrak speaks during an event to announce his program to fight inflation, in Istanbul, Turkey, October 9, 2018. /VCG Photo)