Food for thought

At 0.1 percent monthly, Turkey’s August inflation, which was published on Sept. 3, disappointed again by coming in slightly higher than expectations of 0 percent. Annual inflation rose from 9.3 to 9.5 percent.

In its regular note on price developments published on Sept. 4, the Central Bank put the blame on food inflation, as expected: In an interview on news channel NTV on Sept. 2, economy tsar Ali Babacan noted that Turkey was facing the worst drought in 14 years. According to a graph that Governor Erdem Başçı and other Bank officials have often used in their recent presentations, there have been only three other similar episodes in the last four decades.

While unprocessed food prices have been increasing more than the rest of the consumer price index since late 2008, the divergence has become more pronounced recently. As the Central Bank’s chief economist Hakan Kara noted during his presentation at the Bank’s monthly meeting with economists on Aug. 28, food prices also have an indirect impact on headline inflation though some service items such as catering.

I agree with the Bank that food inflation cannot be addressed with monetary policy. One solution could be trade: While international food prices have generally fallen sharply during the summer, domestic food prices have risen further. Başçı and Kara are right to underline that “an active foreign trade policy to be imposed on certain agricultural products could be effective in curbing the upside risks on food prices.”

Trade could also improve domestic markets. The Union of Agricultural Chambers (TZOB) recently released monthly changes in producer and consumer prices for certain items. For some items, consumer prices rose much more...