Thirty minutes before noon on a sunny morning in Istanbul, dozens of people were queuing at an eatery featuring a floating heart logo in a bowl.
The menu was written on a chalkboard — tomato soup, green bean and meat stew, pastries — and Kent Lokantas, a city-subsidized eatery, filled up quickly when it opened at midday.
“This is not just a place for the unemployed and poor. Elsewhere, I have to pay TL200 ($6.25) for a meal that costs TL40 here,” said Hasan, a 53-year-old delivery man who eats here every day.
Hussain, a 67-year-old retiree, said he would struggle without Kent Lokantash. “I can’t afford to buy fresh fruit and meat. The prices change every time I go to the market.”
Istanbul’s 14 Kent Lokantas serve about 1,000 meals a day at 40 Turkish lira each, said Erdal Celal Aksoy, the city’s deputy secretary-general. The city subsidizes two-thirds of the cost of the food, he said. The restaurants were introduced in 2022 amid a prolonged inflationary crisis, as inflation peaked at more than 85 percent. But two years on, demand is still so high that Istanbul plans to open 24 more outlets.
Kent Lokantas’ popularity highlights the struggle of President Recep Tayyip Erdogan’s government to tame runaway inflation a year after launching major economic reforms.
Turkey’s central bank has raised its key interest rate to 50 percent from 8.5 percent since economic reforms led by Finance Minister Mehmet Simsek began last June. The maximum monthly interest rate on credit cards, a popular borrowing method for cash-strapped consumers, has tripled to 4.25 percent since last June.
The government also raised taxes and indicated it would not increase the minimum wage again this year after raising it by 49 percent in January. The government last week pledged to cut public spending on everything from foreign cars for government vehicles to the construction of new government buildings.
Erdogan’s policies have been praised by investors, but the benefits are yet to trickle down to Turks who are facing nearly 70% inflation, soaring borrowing costs and the winding down of stimulus measures that have blunted the impact of price increases in recent years.
“This is a bitter pill to swallow,” said Selva Demiralp, a former Federal Reserve economist now at Koc University in Istanbul. “Pensioners and low-income earners will be the ones paying the highest price for fighting inflation,” he added.
Simsek’s goal is to quell a lingering inflation crisis caused by Erdogan’s previous policies, which were centered on a failed bet that low interest rates would cure high inflation rather than cause it.
Earlier this month Erdogan promised there would be “no going back” from the new plan, suggesting there would be no “one-off bailouts” as in the past, including huge handouts before his re-election in May 2023.
Turkey’s new program is gradually restoring the confidence of international fund managers who have poured nearly $10 billion into Turkish stocks and lira-denominated government bonds over the past year, according to central bank data. S&P Global Ratings and Fitch Ratings have both upgraded Turkey’s ratings this year, but high interest rates are cooling loan growth.
But the situation in grocery stores and shopping malls does not yet reflect this improvement. A butcher in Istanbul’s working-class district of Fatih is selling ground beef for 640 Turkish lira a kilo, nearly double what it cost a year ago. “We have very few customers. Instead of buying a kilo before, they are now buying half a kilo or 250 grams because they want to give their children some protein,” says shopkeeper Ekrem.
Hasel Fogo, founder of the research group Deep Poverty Network, said Turkey was at risk of falling into a “poverty spiral” after the hunger line, estimated by trade unions last month at 17,725 Turkish liras a month for a family of four, exceeded the minimum wage of about 17,000 Turkish liras in April. “The working poor are unable to meet their basic needs such as nutrition, housing, health and transportation,” he said.
Many consumers remain skeptical that the new economic stimulus measures will be successful after seeing the central bank miss its inflation target every year since 2011. Voters rebelled against the lingering inflation crisis in local elections in March, when President Erdogan’s ruling Justice and Development Party suffered its biggest defeat since it was founded two decades ago.
“Inflation expectations remain persistent due to the weakening of credibility over the past few years. Financial markets seem to have partially accepted the deflation story, but when it comes to the expectations of households and small businesses, the situation is more difficult,” said Hakan Kara, a former chief economist at Turkey’s central bank and now a professor at Bilkent University.
Turkey’s central bank said earlier this month that it expects annual inflation to fall to 38% by the end of the year, after peaking at about 75% this month. But the central bank’s survey showed consumers expect inflation to reach 80% a year from now. A separate Koc University survey found that more than 90% of consumers said now is a good time to buy long-lasting items, indicating consumers think prices will continue to rise.
Economists say these expectations are front-loading demand, sending prices even higher, creating a vicious cycle and presenting a major challenge for central banks to contain price increases.
Demiralp said the “current level of tightening” of both monetary and fiscal policy was “insufficient” for the central bank to achieve its goals. The central bank’s forecast released in early May suggested the economy would grow by about 2.1% by the end of the year, significantly faster than its February forecast.
“Growth needs to slow further to put inflation on the desired path,” Kara said, adding: “The main question is whether authorities have the patience to withstand the political fallout of this tough stabilization process.”
