Lightning: When You Look at the Big Picture, Disinflation Has Started and Will Continue

Forex - The Minister of Treasury and Finance, Simsek, highlighted a decrease in inflation, stating, "Thus, if you look at the big picture, disinflation has started and will continue," while acknowledging that factors leading to uncontrollable inflation must be managed.

During his speech at the IICEC Conference themed "Economic Growth and Energy: Shaping the Economy of the Future," Minister Simsek noted that the budget deficit would decrease by 2025, explaining, "This supports disinflation as the current account deficit will also decline."

Simsek addressed the following points in his statements: "Now let's move on to the challenging part, the inflation aspect. Of course, there is a serious inflation problem in Turkey; the cost of living issue is very evident. In fact, one of the main targets of this program is to ensure price stability. For this, the necessary monetary policy framework, the appropriate fiscal policy framework, and the structural policy framework that will support it, including income policies and managed or guided pricing policies, will all be supportive in 2025.

Now, you might say that inflation is high in 2024, which is correct, but it was at 65% at the beginning of the year, and if we close the year at around 44-45%, a drop of nearly 20 points is not a bad decrease; the issue is making this a permanent situation.

I want to emphasize that there was rigidity in service inflation, and this is the case worldwide. The rigidities in service inflation will gradually be resolved, and they have started to ease; I emphasize that it has started. 2025 will be much more supportive in this regard, particularly concerning rents, education, etc. Because core goods inflation is 29%, and inflation for goods including food is below 40%, therefore there is indeed a significant decline in inflation, and this will continue.

Some say that inflation has risen from this level to that level, where is the success? This reflects a very static approach. If Turkey had not managed the exit from Currency Protected Deposits and reduced the risk of monetary liability, controlling budget deficits... Because we spent $75 billion to heal the earthquake wounds. Look, 2.6 trillion in 2023-2024 at today's prices, divide by today’s exchange rate, approximately $75 billion. Controlling the factors that could lead to uncontrollable inflation aside, there is a decrease in inflation. Therefore, if you look at the big picture from that perspective, disinflation has started and will continue.

Of course, we pay attention to market expectations, household expectations, and real sector expectations. Household expectations are indeed high, but there is a decline. We ask the real sector what inflation will be in 12 months, and you say it will be 48, while the end of the year is 44. Are we entering a new phase in monetary policy, a new phase in fiscal policy, or a different phase in income policy? The way the real sector thinks this way is quite significant. It has been somewhat challenging to make sense of this. When we asked market participants, there is a 27% inflation expectation for the next 12 months.

So, what will happen in 2025? First, monetary policy has a delayed strong impact. We will have a negative effect because we will reduce the fiscal deficit. A more supportive income policy, we are currently evaluating whether some critical managed prices, for example, fuel, will be updated for inflation. But the most important thing is supply-side policies. Now, the budget deficit is a critical area for me; we have significantly addressed the earthquake wounds. Therefore, the budget deficit will decrease in 2025; it may be around 3 or slightly lower or higher, but it will decrease, which strongly supports disinflation.

Regarding housing, there is currently an enormous housing mobilization due to the earthquake. By the end of this year, 200,000 housing units will be delivered. For next year, I cannot predict as it is a construction process, but within the next 1-1.5 years, an additional 250,000 housing units will be available, indicating an increase in housing supply. Additionally, there is a continued project for 250,000 social housing, which are significant numbers. From the 1980s until the early 2000s, only 43,000 social housing units were built, while since then, 1.5 million social housing units have been constructed. Therefore, we will increase this housing supply and facilitate our citizens' ability to rent or own homes at reasonable, naturally expected values. In supply-side policies, food is critically important for us. Our top priority here is to accelerate irrigation and consolidation investments, support and enhance food logistics, and promote and increase organized agricultural regions."