Can rising tourism reduce Turkey’s inflation?

Inflation is a global conflict that people are battling all across the world. However, the issue is particularly acute in Turkey, where individuals are struggling to make ends meet.

They’re trying to figure out what they can afford and how to budget.

The country is experiencing a cost of living crisis due to surging inflation and a currency that has lost over half of its value.

After peaking at 36 percent in December, inflation soared to 48.7% in January.

However, other economists believe the true rate is significantly higher.

“A technical gauge of inflation has been developed by a group of academics. [In December], their measurement was close to 60%]. This places a significant strain on society as a whole “Durmus Yilmaz was quoted as saying.

He was the governor of Turkey’s central bank from 2006 until 2011, and is now a member of the opposition party.

President Recep Tayyip Erdogan removed Sait Erdal Dincer, the head of Turkey’s statistics agency, only days before the release of January’s inflation report on Thursday.

According to local media, the president’s decision was motivated by his discontent with the country’s worsening economic circumstances and his ambition to run for re-election next year.

Turkey’s central bank will meet in two weeks to examine ways for reducing household misery.

However, officials are unlikely to use the traditional strategy of lowering inflation by raising interest rates.

This is because President Erdogan believes that higher interest rates generate inflation, which goes against traditional economic logic.

He’s also directed the central bank to slash rates four times in the last five months.

The president stated last week that citizens across the country will have to “bear the burden” of inflation for “some time.”

Household budgets have been squeezed by increasing prices and a weakening currency.

For example, the cost of red meat has risen to the point where many families can no longer afford it.

Those that have the means to do so purchase it less frequently or in lesser quantities.

The lira’s depreciation led grocery retailers to re-price products on the shelves practically every day in December.

Montoya, a university student in Istanbul, said she chose to rent out her additional bedroom to visitors in order to make rent payments each month.

“I’m very concerned about it since I’m terrified when someone I don’t recognise approaches me.

“It’s staying with someone I don’t know at home.

“It’s honestly rather terrifying, but I have no choice. I went to the market yesterday, and one bag costs 300 lira. It was 150 a month ago “she stated

For those living within the country, the economic situation is becoming increasingly difficult.

However, thanks to a favourable exchange rate, Turkey has become a more appealing vacation destination for visitors from all over the world.

Prior to the coronavirus outbreak, tourism contributed $34 billion (£25 billion) into Turkey in 2019.

Despite the fact that the sector was hit hard by lockdowns and travel restrictions in 2020, it recovered in 2021.

Arrivals increased by 85.5 percent, while revenue remained a third lower than before the outbreak.

For the Grand Circle Travel company, Sebnem Altin leads group trips across the country.

There are reservations, she acknowledged, but she believes the recovery is still fragile.

“This past season, customers were able to cancel their tours at the last minute, and agencies were extremely accommodating, which was novel.

“As a result, even if we have bookings and things appear to be looking brighter for the following year, we can never be certain that these bookings will be fulfilled.

“As a result, I always have concerns and I’m not confident,” she explained.

Tourism accounts for roughly 13% of Turkey’s total economy.

According to the World Trade Organization, the country was the sixth most popular tourist destination in 2019.

Even back then, the favourable exchange rate was cited as a crucial factor in attracting visitors.

According to Roger Kelly, a lead regional economist at the European Bank for Reconstruction and Development, if the industry continues to revive as travel restrictions are eased this year, Turkey could reap further economic gains.

He claimed that one of the economy’s underlying structural issues is the country’s current account imbalance, which means that Turkey buys more products and services than it exports.

He believes that more tourism earnings would assist to lower the deficit.

“Clearly, having good tourism receipts helps minimise the current account deficit, which makes borrowing easier and supports the lira.

“Because a lower lira helps to feed inflation, it means your inflation problem is lessened.

“So, if you have a pretty successful tourism season, it helps to stabilise the lira and brings inflation down,” Mr Kelly explained.

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