Turkey's Inflation Police Guards What's Left of Price Stability

(Bloomberg) -- The zabita’s toolkit is no match for the central bank’s.

But after President Recep Tayyip Erdogan’s repeated calls for a crackdown on price hikes, municipal police have found themselves on the frontlines of Turkey’s war on inflation.

On a sunny October morning in Gungoren, a working class Istanbul neighborhood and a stronghold of Erdogan’s Justice & Development Party, members of the zabita were paying surprise visits to supermarkets in their municipal van, perusing the shelves and issuing warnings to shop managers suspected of price-gouging.

“We compare price labels with prices at the cash register,” says Ahmet Ergal. “We also check product weights. We go to a few stores every day.”

The measures reflect a growing desperation among policy makers as the lira’s 38 percent collapse this year wreaks havoc on prices, pushing inflation to a 15-year high near 25 percent in September. Gains in producer prices have soared at nearly double that pace.

The central bank has already jacked up its benchmark interest rate by 6.25 percentage points to 24 percent last month, arresting a run on the currency that at one point sent the lira plunging as much as 12.5 percent in a single day.

The government is expected to unveil on Tuesday a roadmap of measures to rein in runaway prices.

But short of delivering another wallop of monetary tightening in the face of Erdogan’s distaste for higher borrowing costs, policy makers are left to watch the zabita do what it can.

The inspections started soon after Erdogan’s appeal on Sept. 14 for authorities to “work out control mechanisms” against price hikes. They took off in earnest this month, when the president specifically called out the zabita.

“It’s our duty to do whatever is necessary wherever prices are seriously volatile,” Erdogan said Oct. 2.

Still, without a mandate to reverse or prevent price increases, the zabita profess bewilderment at what they find. “Whoa! Is this gold or what?” asks a member of Ergal’s team, holding a 120-unit pack of dishwasher tablets in his hand. At 105 liras ($17), the price is about 6 percent of the monthly minimum wage.

At some stores, the cost of eggs and toilet paper has increased by 33 percent and 25 percent in just two weeks. In the cat-and-mouse game that’s playing out all over Turkey, Mustafa Turk -- a zabita chief in Ankara -- has his men check a cold-storage room to see if there’s any “hoarding” of goods to be sold at a higher price.

Consumers can’t help but be skeptical. “The hikes are not because of markets, but as a result of Turkey’s overall course,” Sabri Ergin says while shopping. “These inspections can solve nothing.”

With the zabita bearing down on shops, however, store managers try to talk their way out of problems. “Of course prices should fall,” says Ercan Ilikhan, branch manager of one supermarket in Istanbul.

Other state efforts could carry more bite. The Turkish Trade Ministry said that as of Monday, its officials have checked tens of thousands of products at almost 4,000 companies, demanding answers in writing from 114 firms in defense of what was deemed unfair pricing.

Micromanaging the economy may only delay Turkey’s reckoning, especially after criticism that the central bank already waited too long before aggressively raising interest rates.

“Inflation cannot be fought against through law enforcement,” Erinc Yeldan, an economist at Bilkent University in Ankara, said by phone. Inspections may give the message that the government won’t allow profiteering, but “that should not be the main method,” he said.

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