Turkey presses strained retailers for price freezes ahead of elections

Turkey’s unusual request that its retailers partially freeze prices ahead of elections has prompted some supermarkets and industry groups to warn they could only do so for a short period.

Finance Minister Nureddin Nebati asked clothing and shoe stores to launch their discount season well ahead of usual March after grocers had done the same.

After almost six months of public calls from President Tayyip Erdogan’s government, the country’s largest market chains began a month-long price freeze and some cut prices this month.

Yavuz Altun, chief executive of 200-store chain Happy Center, said discounts for shoppers will depend on how much more the chain had to pay its suppliers. “We could accommodate hikes up to a certain point, however there is a limit” he said.

Annual inflation hit a 24-year high of 85% last year and prices were up 64% year-on-year in December.

The cost-of-living crisis is a top concern for voters ahead of a tight vote in May, and the government has sought to soften the impact with record spending on social aid and a 55% minimum wage increase since July.

The pressure on retailers is the latest attempt to rein in price growth without touching interest rates, which Erdogan insists – at odds with mainstream economists – must be low to bring inflation down.

The central bank held its key rate at 9% on Thursday.

It is unclear though, how long the retail price cuts will last.

“For now, the stable lira is supporting us and could allow discounts of 10%-30% until March,” said Altun. “However, albeit minimal, the increase in minimum wages will lift prices.”

Cheese and meat

Nebati said earlier this month he was pleased that some market chains have heeded calls for discounts. “I’m now calling on all retailers and asking them for similar steps,” he told a business group.

Under pressure, Turkey’s largest market chains including A101, BIM, Carrefoursa, Migros and SOK froze or cut prices of hundreds of products for January.

An industry body representing 5,000 local markets then followed suit.

Yet after years of high and volatile prices, some shoppers want permanent solutions.

“There are no discounts on staple items like cheese and meat, which is still too expensive,” said Mujgan Askan, 49, from the western city of Kirklareli, adding that the discounted products were hard to find.

Seref Fayat, head of apparel industry council TOBB, said the aggressive interest rate cuts boosted demand and may end up driving up prices by up to 30%, rather than cooling them.

Price cuts “are not possible, especially now that we are in the run up to the elections and monetary easing permeates everywhere,” Fayat said.

“After the minimum wage hike, retailers will want to take advantage of this relative increase in purchasing power. They will also want to reflect rising costs in price tags, which they have not yet done.”

Analysts say it is difficult to judge how discount campaigns will affect voters.

“The impact will mostly be psychological,” said Adnan Akan, Retail and Consumer Leader at PWC Turkey.

“January is the month for wage hikes. Think of price freezes like a booster for purchasing power. Looking from the government’s point of view, it is a smart choice.” [Reuters]