WEBVTT - The Global War on Inflation Is Far From Over 0:00:03.920 --> 0:00:06.960 Hello, Stephanomics. Here the podcast that brings you the global economy. 0:00:07.360 --> 0:00:09.600 There are plenty of people in the Bloomberg newsroom who 0:00:09.640 --> 0:00:12.480 would tell you that one number matters more than any 0:00:12.520 --> 0:00:17.080 other in the global economy in three and that's US inflation. 0:00:17.600 --> 0:00:19.759 We got the latest print this week, and for at 0:00:19.840 --> 0:00:22.360 least a few hours, the conversation was of little else 0:00:22.440 --> 0:00:26.000 what it meant for interest rates, global markets, unemployment. But 0:00:26.120 --> 0:00:30.000 guess what, US inflation is not the only thing that matters. 0:00:30.440 --> 0:00:33.200 In fact, the event which might have the greatest impact 0:00:33.200 --> 0:00:36.000 on the global economy this year may already have happened, 0:00:36.240 --> 0:00:40.599 and that's Chinese President Seijingping's decision to reopen the Chinese 0:00:40.600 --> 0:00:45.920 economy almost overnight short term that has sent COVID infection 0:00:46.040 --> 0:00:49.960 rates soaring. It might even weaken the president's position, given 0:00:50.000 --> 0:00:52.760 how much he has invested in protecting the population from 0:00:52.760 --> 0:00:56.600 the virus. But if it leads to markedly faster Chinese 0:00:56.640 --> 0:00:59.680 growth in the second part of this year, we also 0:00:59.760 --> 0:01:02.480 know it will push up the price of raw materials 0:01:02.480 --> 0:01:05.840 and energy again and really complicate the job of cutting 0:01:05.840 --> 0:01:10.080 inflation in Europe and the US. Our chief global economist, 0:01:10.080 --> 0:01:13.240 Tom Marlick, has run the numbers on what exactly that 0:01:13.319 --> 0:01:15.880 might mean for the rest of us, So stick around 0:01:16.160 --> 0:01:19.200 to hear the results. We're also going to hear from 0:01:19.240 --> 0:01:22.560 the land of upside down Economics with a report and 0:01:22.680 --> 0:01:28.280 conversation about Turkey. But first, a quick postcard from Argentina, 0:01:28.640 --> 0:01:31.679 which had an inflation rate over the course of two 0:01:32.080 --> 0:01:36.720 of just under one. That's the highest rate in the 0:01:36.760 --> 0:01:40.120 G twenty group of economies, and it has plenty of 0:01:40.160 --> 0:01:45.319 awkward consequences for the economy and for Argentina's people, as 0:01:45.319 --> 0:01:49.800 our Economy and Government reporter Patrick Gillespie describes, for tourists, 0:01:49.840 --> 0:01:56.480 it's also made changing money quite an exercise. Yeah, I'm 0:01:56.600 --> 0:01:59.760 standing at the entrance of a Western Union branch and 0:02:00.000 --> 0:02:04.160 Central Buenos Aires, Argentina. The company provides a popular currency 0:02:04.200 --> 0:02:08.600 exchange service, and at twelve pm on a regular summer Thursday, 0:02:09.040 --> 0:02:13.040 the line is out the door. Inside the queue is 0:02:13.080 --> 0:02:17.919 like United Nations of buzzing tourists speaking German, French, Portuguese 0:02:18.240 --> 0:02:22.119 and English while they're waiting to exchange cash. It might 0:02:22.240 --> 0:02:26.040 look all normal until you take a peek into people's bags, 0:02:26.080 --> 0:02:30.000 from fanny packs to backpacks and big purses. Everyone here 0:02:30.120 --> 0:02:33.320 is walking out with loads of pacil bills in cash. 0:02:33.520 --> 0:02:35.440 The first time I did it kind of fels like 0:02:35.480 --> 0:02:37.679 I'm I'm rubbing a bank or so that was some 0:02:37.840 --> 0:02:40.400 weird When when do you have so much money in 0:02:40.400 --> 0:02:43.880 your hands? That was Stefan tavern If, twenty eight year 0:02:43.880 --> 0:02:47.320 old tourist from the Netherlands. He's fetching money to pay 0:02:47.360 --> 0:02:50.119 for his next flight with a pile of cash as 0:02:50.160 --> 0:02:53.800 thick as a brick. He's much more experienced now, but 0:02:53.919 --> 0:02:56.480 having so much cash on hand still leaves him a 0:02:56.480 --> 0:03:00.399 little unsettled. And the other thing based having so much 0:03:00.680 --> 0:03:03.880 so many notes right, Like, it's not it's basically thousand 0:03:03.919 --> 0:03:06.560 is the highest one you can get. And I just 0:03:06.639 --> 0:03:09.440 picked up, like what a couple hundred dollars and our 0:03:09.440 --> 0:03:12.720 euros and that's it's not just I love money, um 0:03:13.000 --> 0:03:16.920 just Argentina is a complex economy, with at least a 0:03:16.960 --> 0:03:20.480 dozen different exchange rates and a labyornth of currency controls. 0:03:21.040 --> 0:03:24.480 Those restrictions have created a growing gap between the official 0:03:24.480 --> 0:03:28.520 exchange rate and all of the other informal exchange rates. 0:03:28.560 --> 0:03:30.480 So if you go to a bank a t M 0:03:30.560 --> 0:03:33.639 in Buenos Aires, for example, one dollar would get you 0:03:33.720 --> 0:03:36.440 about a hundred and eighty paces at the official rate, 0:03:37.520 --> 0:03:39.840 but if you go to Western Union you get about 0:03:39.920 --> 0:03:43.000 three hundred and thirty five paces per dollar because the 0:03:43.080 --> 0:03:46.840 company offers a parallel exchange rate used in financial markets. 0:03:47.560 --> 0:03:50.040 That's nearly double the amount of money you get going 0:03:50.120 --> 0:03:55.960 through the traditional banking system. So how did the paco 0:03:56.080 --> 0:04:05.000 get here? Well, the answer is threefold. First, Argentina's inflation 0:04:05.120 --> 0:04:10.160 rate is nearing one of the highest in the world. Second, 0:04:10.480 --> 0:04:14.400 the government intentionally keeps the official exchange rate low to 0:04:14.520 --> 0:04:18.880 protect its razor thin currency reserves. This helps to prevent 0:04:19.040 --> 0:04:22.720 a major currency crisis and evaluation, which is something the 0:04:22.760 --> 0:04:25.960 government wants to avoid at all costs, at least until 0:04:26.160 --> 0:04:29.840 this year's presidential election in October. The last government that 0:04:29.880 --> 0:04:32.719 allowed a major run on the pace so got voted 0:04:32.760 --> 0:04:37.320 out after just one term in office. And finally, the 0:04:37.480 --> 0:04:41.440 largest cash bill in Argentina is only one thousand paso's 0:04:41.800 --> 0:04:45.680 worth about three dollars today. The government refuses to make 0:04:45.960 --> 0:04:49.280 larger denomination bills and says it wants to focus on 0:04:49.400 --> 0:04:53.680 digital payments, but critics say that's just an excuse. They 0:04:53.839 --> 0:04:56.040 argued that the central Bank doesn't want to print a 0:04:56.160 --> 0:04:59.720 larger denomination bill because it would be an admission that 0:04:59.800 --> 0:05:07.040 they failed to contain inflation. The peril of this currency 0:05:07.120 --> 0:05:10.480 crisis has made Argentina both a tourist haven and a 0:05:10.560 --> 0:05:14.800 laughing stock. At a football match last year, Brazilian fans 0:05:15.040 --> 0:05:18.560 tore up pays so cash bills to mock their Argentine 0:05:18.600 --> 0:05:22.480 opponents as their team cruise to victory, and a TikTok 0:05:22.640 --> 0:05:26.240 video went viral in which a Dutch influencer with the 0:05:26.360 --> 0:05:31.799 handle travel Tom Tom added insult to Argentina's injury. Hey, Europeans, 0:05:31.839 --> 0:05:35.200 when you think your inflation is bad, this is Argentina 0:05:35.360 --> 0:05:40.159 seventy inflation. This is the biggest bill in Argentina. It's 0:05:40.200 --> 0:05:44.800 one thousand vessels and they're worth it only three dollars. 0:05:45.080 --> 0:05:51.080 I'm so sorry Argentina. Of course, on the ground, it's 0:05:51.120 --> 0:05:54.880 anything but funny. The number of people living in poverty 0:05:54.880 --> 0:06:00.640 and Argentina spiked to nearly from just five years ago. 0:06:01.480 --> 0:06:05.360 A consulting firm called the Agnostico Politico counted about ten 0:06:05.480 --> 0:06:09.880 thousand protests in Argentina last year. That's the highest number 0:06:09.960 --> 0:06:17.160 in more than a decade. Inflation, galloping at such a 0:06:17.320 --> 0:06:21.320 fast pace has wiped out paychecks for middle class Argentine's 0:06:21.880 --> 0:06:25.760 Lucan Palabosino is a nurse working two jobs who had 0:06:25.839 --> 0:06:28.320 to move back in with her father so she could 0:06:28.360 --> 0:06:34.080 save money for her son. I can barely save money. 0:06:34.600 --> 0:06:39.359 It's hard. Everything is so expensive. A pair of shoes 0:06:39.440 --> 0:06:42.520 is forty paces, and those nurses the movement we make 0:06:42.680 --> 0:06:44.640 is a hundred and twenty thousand or a hundred and 0:06:44.760 --> 0:06:47.560 thirty thousand paces or a month, so a pair of 0:06:47.640 --> 0:06:56.920 shoes is half my salary. Looming over the horizon is 0:06:56.960 --> 0:07:00.960 this year's presidential election. A new press acident could lift 0:07:01.040 --> 0:07:04.040 all the currency controls so that there's no gap between 0:07:04.200 --> 0:07:09.520 exchange rates. Still, it's not clear the official paso rate 0:07:09.800 --> 0:07:14.400 will be getting stable anytime soon. Economists surveyed by Argentina's 0:07:14.400 --> 0:07:17.880 Central Bank see one dollar being worth six hundred and 0:07:17.920 --> 0:07:21.040 twenty four pesos by the end of two thousand four. 0:07:21.520 --> 0:07:24.400 That's versus the official rate now of a hundred and 0:07:24.520 --> 0:07:29.960 eighty pasos per dollar. Many believe a major currency devaluation 0:07:30.200 --> 0:07:34.239 is inevitable at some point, so no matter who wins 0:07:34.320 --> 0:07:37.280 the presidential race, you can still bet that cash will 0:07:37.320 --> 0:07:41.160 be king in Argentina and you will always find exchange 0:07:41.200 --> 0:07:46.040 houses shouting cambio or exchange on the streets of Buenos Aires. 0:07:50.760 --> 0:08:08.640 In Buenos Aires, I'm Patrick Gillespie for Bloomberg News. While 0:08:08.640 --> 0:08:11.560 I happen to know that quite a few economic students 0:08:11.680 --> 0:08:14.120 listen to this podcast, God help them. In fact, my 0:08:14.160 --> 0:08:16.480 teenage son has even been encouraged to listen, though he 0:08:16.560 --> 0:08:19.400 seems to have resisted so far. And if they take 0:08:19.520 --> 0:08:22.920 monetary policy one oh one, they'll be taught that if 0:08:22.960 --> 0:08:25.680 a country has a problem with inflation, it needs to 0:08:25.840 --> 0:08:29.720 raise interest rates increase the cost of money. Now the 0:08:29.840 --> 0:08:32.600 Argentine Central Bank has done that. I mean, it's true. 0:08:32.640 --> 0:08:36.200 With the presidential election coming up in October, the authorities 0:08:36.240 --> 0:08:39.000 are a bit less keen to raise rates. But the 0:08:39.080 --> 0:08:43.920 official interest rate is already at seventy. Now if we 0:08:43.960 --> 0:08:47.960 go to Turkey, inflations also in the high double digits there, 0:08:48.320 --> 0:08:51.880 but the official interest rate is only nine and the 0:08:52.000 --> 0:08:57.599 central bank has cut rates significantly in one and two. 0:08:58.600 --> 0:09:02.280 This reflects not the economics of textbooks, but the economics 0:09:02.600 --> 0:09:06.640 of President Argon. Central bank governors who have disagreed with 0:09:06.720 --> 0:09:09.679 this policy over the past few years haven't lasted very 0:09:09.760 --> 0:09:13.200 long in the job. Or Bloomberg's economist covering Turkey used 0:09:13.200 --> 0:09:15.240 to work at the central bank. In a minute, I'll 0:09:15.280 --> 0:09:17.280 ask her what it's like to be tearing up the 0:09:17.360 --> 0:09:21.000 rules of economic policy on a daily basis. But first 0:09:21.400 --> 0:09:23.360 a taste of what it's like to be in Turkey 0:09:23.760 --> 0:09:31.600 from our economy and government reporter Beryl Ackman, each other 0:09:32.600 --> 0:09:37.760 graduling inflation will below from now on. Therefore minimum wage 0:09:37.800 --> 0:09:40.240 phrases a number that will easily help people get by. 0:09:40.559 --> 0:09:43.720 We have solved inflation. That was a Turkish finance minister 0:09:44.640 --> 0:09:49.440 Nebati in an interior last week. He celebrated inflatitions downward 0:09:49.480 --> 0:09:52.559 trend and said as government had solved the fastest go 0:09:52.640 --> 0:09:57.080 out and prices in over two decades. Trouble is, inflation 0:09:57.200 --> 0:10:01.280 is still running around sixty Compare that to the U 0:10:01.480 --> 0:10:04.640 S and the EU, where consumers are grumbling about inflation 0:10:04.800 --> 0:10:09.360 that's in the high single digits. I am Billy Lackman, 0:10:09.520 --> 0:10:13.360 an economy reporter for Bloomberk based in Turkey, where basic 0:10:13.440 --> 0:10:17.480 kitchen stables like milk or eggs have become luxuries, and 0:10:17.559 --> 0:10:20.360 where prices have become so unanchored that it's hard to 0:10:20.440 --> 0:10:24.679 tell what's expensive anymore and what the normal prices. On 0:10:24.800 --> 0:10:27.439 a recent Sunday, I want to get coffee at the 0:10:27.520 --> 0:10:30.360 nearest Starbucks to my house in a Turkish capital, Anchara. 0:10:32.679 --> 0:10:36.319 Because authorizing electricity costs, we have stopped using a refrigerator. 0:10:36.559 --> 0:10:39.040 I will see a two thousand, three thousand bluer electors 0:10:39.120 --> 0:10:41.040 to bill every month. That is the voice of a 0:10:41.080 --> 0:10:43.360 flower shop merchant who has asked me to omit his 0:10:43.440 --> 0:10:46.679 name to avoid any trouble at his workplace or with authorities. 0:10:47.160 --> 0:10:49.480 He told me earlier that it is landlord increased. The 0:10:49.520 --> 0:10:52.839 workplace is read by almost two hundred percent. I chat 0:10:52.920 --> 0:10:55.880 a bit with him, and I comment that despite high inflation, 0:10:56.080 --> 0:10:59.280 it looks like business as usual on the outside. Cafes 0:10:59.320 --> 0:11:02.640 and restaurants are filled, Shopping malls are crowded. For many 0:11:02.720 --> 0:11:05.560 Turkey watchers, that is a strange part that life feels 0:11:05.640 --> 0:11:09.679 normal in many ways. Pointing at the coffee cop I'm holding, 0:11:10.000 --> 0:11:12.520 he tells me that people need to socialize and have fun. 0:11:12.800 --> 0:11:18.040 Inflation or not, They say, Starbucks are always crowded. What's 0:11:18.080 --> 0:11:21.240 the guy supposed to do? One would go crazy. It's 0:11:21.280 --> 0:11:25.440 a mortal world. Inflation is a problem pretty much everywhere 0:11:25.480 --> 0:11:28.760 around the globe, but Turkey had double digit inflation even 0:11:28.840 --> 0:11:31.959 before the war began. The situation in Ukraine just made 0:11:32.000 --> 0:11:37.520 things way worse economic orthodox He says that when inflation spikes, 0:11:37.760 --> 0:11:40.720 central banks should raise interest rates to cool the economy, 0:11:41.080 --> 0:11:46.400 reduced demand for goods and services and lower prices. But 0:11:46.559 --> 0:11:49.280 as other top bankers rushed through as their interest rates, 0:11:49.559 --> 0:11:53.319 Turkey did the opposite. From August through November last year, 0:11:53.760 --> 0:11:57.440 the Turkish Central Bank cut rates. The benchmark rate now 0:11:57.559 --> 0:12:01.000 stands at nine percent when that I stood for inflation, 0:12:01.200 --> 0:12:04.439 which is six. This makes Turkey have one of the 0:12:04.559 --> 0:12:09.679 deepest negative real rates, meaning money is extremely cheap. President 0:12:09.760 --> 0:12:13.120 rejeb Type Ardon, the country's long serving leader, has a 0:12:13.200 --> 0:12:17.360 big hand in Turkey's policy. FI is that the indictmate. 0:12:19.559 --> 0:12:21.480 I told you we would lower the interest rates to 0:12:21.559 --> 0:12:24.679 single digits, and we did. It will continue like this 0:12:24.840 --> 0:12:27.599 from now on. They say. Inflation is like this and 0:12:27.760 --> 0:12:32.000 that don't worry that too will fall. President Ardon is 0:12:32.200 --> 0:12:35.319 hardly alone and preferring to keep borrowing costs law. But 0:12:35.440 --> 0:12:38.840 the president argues that lower rates will bring down inflation. 0:12:39.440 --> 0:12:41.880 We have yet to see this theory validated in real life, 0:12:42.679 --> 0:12:45.400 and while most nations are trying to slow their economy 0:12:45.480 --> 0:12:48.400 is a bit too cool inflation. Ardn is boosting spending 0:12:48.480 --> 0:12:51.840 and raising pay for minimum wage earners. It's been dubbed 0:12:51.920 --> 0:12:58.720 the Turkey economy model and Who's killer will become one 0:12:58.760 --> 0:13:02.559 of the fastest glowing trees in the world. For now, 0:13:02.720 --> 0:13:06.840 Turkey citizens are hurting. Farouk, who owns a corner store 0:13:06.960 --> 0:13:09.920 in a quiet street near Anchor a central life square, 0:13:10.559 --> 0:13:18.160 says dairy has become unaffordable. Essential food items, for example, 0:13:18.280 --> 0:13:22.760 daily products have become incredibly expensive, extremely expensive. We compromise 0:13:22.800 --> 0:13:25.920 from ourselves. Our preferences have shifted and we tried to 0:13:26.040 --> 0:13:28.640 make some of them ourselves. Because the money we are 0:13:28.679 --> 0:13:31.600 and does not compensate for our purchasing power. We try 0:13:31.640 --> 0:13:38.080 to say more. Many economists think Turkey needs an urgent 0:13:38.200 --> 0:13:42.280 policy you turn, and that the current policy format is unsustainable. 0:13:43.240 --> 0:13:46.559 Turkey's elections are expected to take place in about five months, 0:13:47.080 --> 0:13:50.280 and that's why President Ardon is fixated on economic growth. 0:13:50.840 --> 0:13:53.440 But Ardon and his UG party are facing a serious 0:13:53.559 --> 0:13:57.400 challenge from a six party opposition alliance and growing discontent 0:13:57.520 --> 0:14:00.640 over high living costs. So it is is posed, I 0:14:00.720 --> 0:14:03.120 said to suggest Ardon has a high chance of getting 0:14:03.160 --> 0:14:07.400 re elected, but this party may see power. Turkey's finance 0:14:07.480 --> 0:14:10.040 Minister said the nation will keep its policy of low 0:14:10.120 --> 0:14:13.840 interest rates regardless of what happens in the election. Meantime, 0:14:13.920 --> 0:14:17.000 the Turkish people are desperate for something, anything, to ease 0:14:17.080 --> 0:14:21.080 the skyrocketing prices. Arton, who works at a stationary shop 0:14:21.160 --> 0:14:26.720 in Ankara, is struggling to provide for his family. We 0:14:26.800 --> 0:14:29.720 cannot get by work with minimum wage to look after 0:14:29.840 --> 0:14:32.920 two kids and look after the household pay round. It's impossible. 0:14:33.440 --> 0:14:36.240 What we are doing is just pretty I asked Arton 0:14:36.360 --> 0:14:38.960 what items he has the most trouble paying for. The 0:14:39.120 --> 0:14:45.320 list keeps growing. London's and said to them, first food, 0:14:45.480 --> 0:14:48.200 then clothing. Before we used to go out to dinner 0:14:48.400 --> 0:14:51.560 once or twice and long. Now it's maybe every six months, 0:14:51.920 --> 0:15:09.480 and it's even rare. I'm Berry Lackman for Bloomberg News. Yeah, so, 0:15:09.640 --> 0:15:11.960 as promised, we will dig into the upside down world 0:15:12.040 --> 0:15:15.200 of Turkish economic policies now and broaden things out to 0:15:15.280 --> 0:15:18.480 talk about what's going to happen to inflation everywhere. With 0:15:18.640 --> 0:15:23.440 Bloomberg's Turkey economist Selva Besiki joining from Anchora, and our 0:15:23.480 --> 0:15:26.520 chief global economist Tom Marlick, who's with me here this 0:15:26.680 --> 0:15:30.480 week in New York. Welcome both of you, Silva, thank 0:15:30.560 --> 0:15:33.320 you so much. You worked for several years at the 0:15:33.360 --> 0:15:36.880 Turkish Central Bank before we helped you to escape. We 0:15:37.040 --> 0:15:39.280 like to think, just sort of from a personal note, 0:15:39.400 --> 0:15:43.920 is it difficult for officials at the central bank to 0:15:44.240 --> 0:15:47.480 to stick with these unorthodox policies? Do you think? Yes? 0:15:47.560 --> 0:15:50.160 And no? There's still very good technocrats at the bank 0:15:50.200 --> 0:15:54.080 who produced analysis based on orthodox economic views, but the 0:15:54.200 --> 0:15:57.960 monetary policy committee caters to the demands of the political leadership. 0:15:58.480 --> 0:16:01.200 The law interest rate policy, of course comes at the 0:16:01.280 --> 0:16:04.960 cost of weeklyra and high inflation, and the bank has 0:16:05.000 --> 0:16:08.360 to resort to all these alternative tools to lessen the 0:16:08.440 --> 0:16:12.360 negative feedback on both. That only works partially and pushes 0:16:12.440 --> 0:16:15.720 the economy into over regulation. And I guess the question 0:16:15.800 --> 0:16:18.200 that lots of people ask is why there hasn't been 0:16:19.040 --> 0:16:23.680 a bigger crisis in Turkey with them following these policies 0:16:23.800 --> 0:16:26.120 now for several years. People, you know, things are tough 0:16:26.200 --> 0:16:28.760 in Turkey. I mean, we've we've heard that, but people 0:16:28.880 --> 0:16:33.160 have been expecting that to be a tipping point, a 0:16:33.200 --> 0:16:36.840 sort of moment of truth just doesn't seem to come. Yeah, 0:16:37.480 --> 0:16:40.920 especially when we think of the very high external financing 0:16:41.000 --> 0:16:43.600 needs of the economy. I'll just give you one number 0:16:43.680 --> 0:16:46.120 to illustrate. The external debt that is due within a 0:16:46.240 --> 0:16:50.000 year accounts for the fifth of GDP, and the resource 0:16:50.120 --> 0:16:53.120 coverage of this death is less than six So, as 0:16:53.200 --> 0:16:57.760 you said, what is stopping this crisis from coming? Two things. 0:16:58.200 --> 0:17:03.600 The central Bank has been in travening ah installed interventions 0:17:03.640 --> 0:17:08.000 into currency markets, which we calculate to be at around 0:17:08.160 --> 0:17:12.400 a hundred billion US dollars generated through October last year. 0:17:13.000 --> 0:17:15.880 This in itself, of course, as the fragilities and takes 0:17:15.960 --> 0:17:19.280 the net reserves into even deeper negatives. There's also a 0:17:19.400 --> 0:17:23.600 second point, is this money flows, the mystery money flows 0:17:23.680 --> 0:17:27.360 into the country under net errors and emissions. Now these 0:17:27.440 --> 0:17:32.320 are flows that normally would be small statistical discrepancies under 0:17:32.359 --> 0:17:35.560 the balance of payments, but for Turkey they are at 0:17:35.600 --> 0:17:39.239 twenty two billion U S dollars. In other words, they 0:17:39.400 --> 0:17:42.840 financed about half all of the current account deficit. Um. 0:17:43.000 --> 0:17:47.080 The central Bank thinks it's currency influence from deposits accounts 0:17:47.400 --> 0:17:51.400 held abroad. A more likely explanation, however, is offered even 0:17:51.440 --> 0:17:55.040 by the Minister of Finance. Actually, um cash flows from Russia. 0:17:56.280 --> 0:17:58.560 So just to sort of pick that a little bit, 0:17:58.640 --> 0:18:01.040 the reason why you'd expect Turkey to have a crisis 0:18:01.560 --> 0:18:04.040 is it's dependent on borrowing from the rest of the 0:18:04.080 --> 0:18:08.920 world to cover the gap in its external balance, and 0:18:09.960 --> 0:18:13.240 the central bank has been sort of propping up the currency, 0:18:13.680 --> 0:18:18.760 spending lots of foreign reserves on doing that, and despite 0:18:19.280 --> 0:18:21.920 and it doesn't have enough of those reserves. But somehow 0:18:22.080 --> 0:18:25.119 there's some sort of secret money coming into the country 0:18:25.160 --> 0:18:28.800 which makes the numbers add up. Is that broadly what's happened. Yeah, 0:18:29.000 --> 0:18:32.040 so the secret money coming in is definitely you know, 0:18:32.280 --> 0:18:36.160 most of it is uh cash flows from Russia. There's 0:18:36.240 --> 0:18:39.560 this other factor to consider them. The central banks reserves 0:18:39.680 --> 0:18:42.960 are in negatives, so how do they even intervene? Very 0:18:43.200 --> 0:18:46.680 very valid point um. The central bank has enhanced its 0:18:46.760 --> 0:18:50.000 sources of reserves since the beginning of last year. They 0:18:50.040 --> 0:18:54.639 are now tapping into um foreign currency revenues of exporters. 0:18:55.119 --> 0:18:58.840 You have to convert of your revenues through the central 0:18:58.880 --> 0:19:01.520 bank and give the all the effects to the bank. 0:19:01.880 --> 0:19:04.080 So the sort of creative bookkeeping and also a lot 0:19:04.119 --> 0:19:08.280 of into sort of forcing the hands of exporters and 0:19:08.359 --> 0:19:10.840 taking some of the money they're earning abroad. They're lucky 0:19:10.920 --> 0:19:12.480 in a sense that You've got quite a lot of 0:19:12.600 --> 0:19:17.480 Russians who are looking to shelter money from sanctions. Absolutely, 0:19:17.680 --> 0:19:20.920 and there's also the other factors. For a couple of 0:19:21.040 --> 0:19:25.600 years now, the real estate market has been quite um 0:19:26.960 --> 0:19:30.760 vibrant with foreign investors coming in, and that has been 0:19:31.040 --> 0:19:35.399 one major area for the Russians to come and claim 0:19:35.680 --> 0:19:39.720 residency here um and perhaps even apply for citizenship through 0:19:40.359 --> 0:19:46.000 property requirement. UM. It used to be that Turkey's southern neighbors, 0:19:46.080 --> 0:19:50.520 so Iran and Iraq nationals used to spare head the 0:19:50.880 --> 0:19:55.200 number one investors in the property market, but since the 0:19:55.320 --> 0:19:59.720 conflict in or the war in Ukraine, now that number 0:19:59.760 --> 0:20:02.600 one position is held by Russians. And you have a 0:20:02.680 --> 0:20:05.200 very distinguished career as an economist, and I guess we 0:20:05.240 --> 0:20:08.520 wouldn't have expected to be talking about mystery flows and 0:20:08.960 --> 0:20:11.840 the geopolitics of money coming in from Russia. I mean, 0:20:11.880 --> 0:20:16.840 there's an economist sitting in Turkey. You know what, what 0:20:16.960 --> 0:20:18.280 do you think is going to happen? Do you think 0:20:18.320 --> 0:20:22.320 there'll be a reversal in these policies after the election 0:20:22.480 --> 0:20:26.560 this year? So, I mean, for the economic students who 0:20:26.600 --> 0:20:30.240 are listening, we know that fighting inflation, um, the interest 0:20:30.320 --> 0:20:32.320 rate is the main course, and all the other policies 0:20:32.359 --> 0:20:35.479 are just side dishes without the anchor from the policy rate. 0:20:35.480 --> 0:20:38.000 There's only so much we can expect from these alternative 0:20:38.040 --> 0:20:40.960 tools that the central bank currently seems to be resorting too. 0:20:41.640 --> 0:20:46.240 So yeah, even that's so called Turkey economy model was 0:20:46.240 --> 0:20:51.280 supposed to boost the economy on four goals UM investments, 0:20:51.400 --> 0:20:57.080 high exports, currents to councer plus and UH strongerly round 0:20:57.800 --> 0:21:01.080 lower inflation. It has failed on all four of these 0:21:01.160 --> 0:21:03.840 goals in the year that it's been it's been applied. 0:21:04.600 --> 0:21:08.200 The central branks reserves are below standard safety levels. There 0:21:08.280 --> 0:21:11.800 seems to be room for interventions until May this year. Um. 0:21:12.160 --> 0:21:15.520 That is probably one of the reasons why the current 0:21:15.600 --> 0:21:19.640 political leadership is considering pulling up elections from June to May. 0:21:20.640 --> 0:21:25.119 After that, policymakers could either continue on this road with 0:21:25.359 --> 0:21:29.200 capital restrictions or they will have to do a policy versal. 0:21:29.280 --> 0:21:31.560 As you say, we see the second option as a 0:21:31.640 --> 0:21:34.520 more likely outcome at the moment, regardless of the outcome 0:21:34.520 --> 0:21:37.800 of the elections. And just briefly, I mean, what do 0:21:37.880 --> 0:21:39.760 you think the economy is going to look like in 0:21:39.880 --> 0:21:42.960 a few years time. What's the long term impact of 0:21:43.160 --> 0:21:47.520 this period of unorthodox policy going to be well, whoever 0:21:48.040 --> 0:21:50.720 is going to be in charge of the economic situation 0:21:50.960 --> 0:21:54.160 has the type time ahead. Um, it's a really tight 0:21:54.320 --> 0:21:58.040 rope walking kind of situation. UM. As you said, Turkey, 0:21:58.080 --> 0:22:02.960 isn't that energy important usually run as a current account deficit, 0:22:03.400 --> 0:22:06.040 So getting put forward investness is really going to be 0:22:06.119 --> 0:22:09.200 critical and that requires a little bit of more long 0:22:09.359 --> 0:22:15.359 term looking rebuilding the institutional terror, which is really going 0:22:15.440 --> 0:22:18.480 to take a long time. Silva, Thank you so much, 0:22:18.680 --> 0:22:22.600 Tom Marlick. Just broadening this out, We've had two pieces 0:22:23.760 --> 0:22:27.320 from countries that have got pretty much the worst of 0:22:27.400 --> 0:22:31.359 the global inflation problem at the moment, Argentina and Turkey. UM. 0:22:31.680 --> 0:22:36.080 Closer to home US Europe, inflation does seem to be 0:22:36.160 --> 0:22:38.600 coming down, but of course a critical question is how 0:22:38.760 --> 0:22:41.160 fast does it come down and where does that leave 0:22:41.640 --> 0:22:44.920 policies for central banks and interest rates next year. What 0:22:45.320 --> 0:22:49.919 are you currently thinking so globally, Stephanie, We think inflation 0:22:50.119 --> 0:22:54.240 peaked around ten percent in the third quarter of two, 0:22:55.080 --> 0:22:58.040 and by the end of three we think he will 0:22:58.080 --> 0:23:01.840 have come down to around five The sun. Now, of course, 0:23:01.920 --> 0:23:05.159 that global average is being skewed up by some of 0:23:05.240 --> 0:23:09.480 the countries. You've just been discussing countries like Turkey and Argentina, 0:23:09.880 --> 0:23:12.280 which don't account for a big share of the global economy, 0:23:12.640 --> 0:23:15.840 but where inflation is just so sky high that it's 0:23:15.920 --> 0:23:19.120 dragging up the global averages. If you take those out 0:23:19.160 --> 0:23:22.040 of the picture and focused on the big advanced economies 0:23:22.440 --> 0:23:26.080 United States, the Euro Area, you've got inflation which peaked 0:23:26.119 --> 0:23:29.680 at a slightly lower level, and it's going to come 0:23:29.760 --> 0:23:34.640 down a little bit more over the course of um. Now, 0:23:35.280 --> 0:23:38.639 why is inflation going to come down? Two big forces 0:23:38.720 --> 0:23:44.040 of work. Firstly, goods prices. During the pandemic, we had 0:23:44.400 --> 0:23:48.280 supply chain snarls and we had stimulus driven demand, and 0:23:48.400 --> 0:23:52.000 both of those things supercharge demand for goods, pushing good 0:23:52.200 --> 0:23:57.400 prices higher. That is now unwinding. Secondly, energy, of course, 0:23:57.480 --> 0:24:01.240 the big story in Rush as invasion of Ukraine and 0:24:01.359 --> 0:24:05.560 all that meant for energy prices. Energy prices rocketed higher 0:24:05.600 --> 0:24:09.200 in now they've come a long way down from their peak. 0:24:10.240 --> 0:24:14.000 Why is an inflation falling further? Well, the story there 0:24:14.359 --> 0:24:17.080 is really a story about labor markets which are very tight, 0:24:17.800 --> 0:24:21.600 wages which are rising very quickly, and so service prices 0:24:21.960 --> 0:24:25.440 which are sticky, and it's that combination of falling goods prices, 0:24:26.440 --> 0:24:31.200 energy prices, but service prices which are staying persistently high, 0:24:31.640 --> 0:24:33.560 which mean inflation is going to come down quite a 0:24:33.680 --> 0:24:37.320 lot over the course of but still at least in 0:24:37.400 --> 0:24:40.280 the United States, stay above the comfort zone of the 0:24:40.359 --> 0:24:42.720 Central Bank. And I started the program by sort of 0:24:42.760 --> 0:24:44.640 giving a hint of some of the research that you've 0:24:44.760 --> 0:24:49.119 just brought out with the team about how china reopening 0:24:49.240 --> 0:24:54.160 could change this picture, because it could quite significantly change 0:24:54.200 --> 0:24:56.680 the outlook for global commodity prices. And then I guess 0:24:56.760 --> 0:25:00.439 that complicates the story for inflation more generally. Yeah, that's right. 0:25:01.080 --> 0:25:06.240 So UM in two thousand and eight, two thousand and nine, 0:25:07.080 --> 0:25:10.240 in the global financial crisis, and the problem for the 0:25:10.320 --> 0:25:14.040 world was weak growth, and China road to the rescue 0:25:14.560 --> 0:25:20.920 with an enormous stimulus boosting global demand. In the problem 0:25:21.200 --> 0:25:24.800 for the world was high inflation, and China, in a 0:25:24.920 --> 0:25:28.480 strange sort of way, helped out again, but this time 0:25:28.800 --> 0:25:33.800 by not running a stimulus. Indeed, China's COVID zero policies, 0:25:34.200 --> 0:25:38.600 which kept China's supply chains China's factories open but crimped 0:25:38.800 --> 0:25:43.720 Chinese demand, probably contributed to lessening global inflation in the 0:25:43.800 --> 0:25:48.520 year just past now in the year ahead, China is reopening, 0:25:49.160 --> 0:25:51.959 and that raises the risk that China's economy is going 0:25:52.000 --> 0:25:55.200 to come roaring back, good news for China's one point 0:25:55.280 --> 0:26:00.159 four billion citizens, but potentially adding an additional impetus to 0:26:00.280 --> 0:26:05.159 global inflation. Now we've done the calculations, we've looked at 0:26:05.160 --> 0:26:11.200 the relationship between Chinese growth, commodity prices, and global inflation, 0:26:11.640 --> 0:26:15.240 and our best estimate and it really is an estimate 0:26:15.280 --> 0:26:17.840 at this point because there's just so much uncertainty about 0:26:17.880 --> 0:26:20.800 how China is reopening is going to play out. But 0:26:20.920 --> 0:26:24.400