Türkiye only ranks 5th
Inflation is particularly severe in these countries
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In Germany, inflation is approaching the green zone. Elsewhere, price increases are extraordinarily high. Now Argentina is reporting a figure that is reminiscent of the times of hyperinflation.
Inflation is on the decline in Europe and the USA. For both the Eurozone and the USA, the target of two percent is within sight, at which the central banks see their goal of price stability achieved. Inflation is a long way from the record levels reached in many countries after the Russian invasion of Ukraine. In some countries, however, it is chronic – prices there have been rising rapidly for years.
The current leader is Argentina. In January, the general price level was 254 percent higher than a year earlier. This means that the country has reached the highest inflation rate since the hyperinflation of 1991. South America's second-largest economy suffers from a bloated state apparatus, low industrial productivity and a large shadow economy that deprives the state of a lot of tax revenue.
The new ultra-liberal president Javier Milei wants to get Argentina back on track with a radical austerity program. The government has significantly devalued the national currency, the peso, and announced cuts in subsidies for gas, water, electricity and public transport – which is likely to further fuel prices.
Lebanon is suffering from the second most severe inflation. The currency is in free fall due to the economic crisis. The price increase is dramatic, reaching 192 percent.
According to the World Bank, inflation in Venezuela is 107 percent. Although this is very high, it is miles away from the rates of hyperinflation that plagued the country just a few years ago. In 2018, the International Monetary Fund (IMF) described the situation in Venezuela as “similar to Germany in 1923 or Zimbabwe in the late 2000s” – and symbolically set the expected inflation at one million percent.
Erdogan pulls the emergency brake
Turkey is also at the forefront. Turkish consumer prices rose significantly in January following the sharp increase in the minimum wage, and were around 65 percent higher than in the same month last year.
The central bank is trying to get inflation under control by raising interest rates sharply. The key interest rate is currently 45 percent. After inflation in Turkey reached values of over 80 percent in 2022, inflation fell noticeably over the course of the past year. Inflation rates of less than 40 percent were reached at times before inflation increased again since last summer.
The inflation problem in Turkey is largely of its own making: Until his re-election last year, President Recep Tayyip Erdogan had implemented a loose monetary policy by the – only formally independent – central bank, even though inflation threatened to get out of control.
Erdogan describes himself as an “enemy of interest rates”, sees interest rates as the “mother of all evil” and claims, contrary to practical experience of the past and economic theory, that low interest rates ensure low inflation and high interest rates ensure high inflation.
In order to implement this unorthodox monetary policy, Erdogan fired several central bank heads and finance ministers until he found a central bank governor who fulfilled his wish for low interest rates. At one point, the head of the statistics authority had to go. Erdogan had accused him of exaggerating the extent of inflation.
Although the loose monetary policy fueled inflation and the currency crisis, it also ensured economic growth – a key reason for Erdogan's popularity among his voters. A few days after the start of his third term in office last summer, Erdogan pulled the emergency brake on monetary policy and appointed Hafize Gaye Erkan as head of the central bank. She followed economic theory and gradually raised the key interest rates from 8.5 percent to the current level. She resigned after only eight months in office. Her successor Fatih Karahan wants to continue the restrictive monetary policy.
