Reuters: Turkey’s inflation hits new 24-year high beyond 80%

Article published: 5 September,  2022

IB Economics syllabus: Macroeconomics (inflation, expansionary monetary policy)

Inflation is insane in Turkey

Last time I wrote about Turkey in January, I was reviewing an article which was about inflation climbing above 20% in the country. Even back then it was obvious that cutting interest rates (by the central bank of Turkey) was definitely the wrong move and by now it seems to be proven: inflation is above 80% (!!!) in the country where they’ve recently continued cutting interest rates – this time to 13%. When interest rates are cut, the costs of borrowing decrease and as a result households and firms will borrow more to spend on consumer goods and capital, respectively. This drives up aggregate demand, which results in a higher average price level (known as inflation). This, together with higher energy prices due to the war in Ukraine together with Covid-19 related supply shortages are sending prices through the roof in Turkey. This article is great for an IB Economics commentary as you can analyse inflation (both demand-pull and cost-push), the ill-used monetary policy (which worsens inflationary pressure) and the economic well-being of the Turkish people in a country where prices are set to almost double on a yearly basis. You can also use intervention for the key concept.

Source of image: Cagla Gurdogan/Reuters

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