£1/ Lira

peterpan416

I wonder if anyone could help me understand.
I went to Turkey in 2022, and the £ was really strong against the Lira, when we ate out in Turkey, and had steak for example, the price was more expensive than the UK, ( even when the price was in Lira and we converted, leading up to the holiday we followed a few recommended restaurants, and every few week as we got closer to the holiday, we could see from the social media that every time the £ increased in strength the Restaurants would increase the Lira prices for food and drink. Now fast foward  2 years to now, in a couple of months I will be traveling to Turkey again, the amount of Lira you get per £ has now double since 2022, I'm expecting price increase again, why would this be the case? I know their government keep increasing inflation, but the shouldn't be raising prices with inflation and then again when the £ increases, or is their inflation is what is driving the £, I'm thinking the currencies that are not as strong as the £, may see the prices as crazy high. Thanks in advance 

eskbanker

peterpan416 said:

every few week as we got closer to the holiday, we could see from the social media that every time the £ increased in strength the Restaurants would increase the Lira prices for food and drink.

You seem to be implying causation in one direction when it could just as easily be the other way round, i.e. inflation drove exchange rates, or even both changing as a result of other factors, such as fiscal policies?  I'd expect significant inflation differentials between countries to be broadly aligned with exchange rate fluctuations....

peterpan416

eskbanker said:

peterpan416 said:

every few week as we got closer to the holiday, we could see from the social media that every time the £ increased in strength the Restaurants would increase the Lira prices for food and drink.

You seem to be implying causation in one direction when it could just as easily be the other way round, i.e. inflation drove exchange rates, or even both changing as a result of other factors, such as fiscal policies?  I'd expect significant inflation differentials between countries to be broadly aligned with exchange rate fluctuations....

Thanks, yeah didn't think of it that way, thanks

DullGreyGuy

How many locals are eating in that restaurant? 
Are they paying the same prices as you?

When in Sri Lanka a beer in the hotel was about £2.55 for a local beer, go to the beach bar just outside the hotel or the "pub" opposite the hotel and it was a much more reasonable £1.60ish. Go to a locals bar away from the hotel and its £0.70 all for the same 330ml Lions beer in a bottle. 

Thats nothing to do with exchange rates or inflation etc simply people knowing that tourists coming from the UK etc will think £1.60 is cheap and be willing to pay for it. Most will like the convenience of the location too. I walked the 10 minutes to the locals bar as the food was much cheaper too. 

Those that target tourists will keep a rough view on FX and adjust prices accordingly whereas the local bar will be charging 280LKR irrespective how strong or weak the currency is. 

In certain parts of Latin America we've had three different prices for the same thing... me on my own gets gringo pricing. Wife, who's a native, gets female local prices. Us together as long as I keep my mouth shut we get male local prices

zagfles

Have you looked at Turkey's inflation rate??!!

Voyager2002

peterpan416 said:

I wonder if anyone could help me understand.
I went to Turkey in 2022, and the £ was really strong against the Lira, when we ate out in Turkey, and had steak for example, the price was more expensive than the UK, ( even when the price was in Lira and we converted, leading up to the holiday we followed a few recommended restaurants, and every few week as we got closer to the holiday, we could see from the social media that every time the £ increased in strength the Restaurants would increase the Lira prices for food and drink. Now fast foward  2 years to now, in a couple of months I will be traveling to Turkey again, the amount of Lira you get per £ has now double since 2022, I'm expecting price increase again, why would this be the case? I know their government keep increasing inflation, but the shouldn't be raising prices with inflation and then again when the £ increases, or is their inflation is what is driving the £, I'm thinking the currencies that are not as strong as the £, may see the prices as crazy high. Thanks in advance 

The restaurant management probably think in Euro. They estimate what their target customers, who are tourists, are willing to pay in Euro. Then every day they look at the exchange rate and convert that price into Lira.

If you went to restaurants whose management aim at local customers then they are calculating what their target customers are willing to pay. Again, most of the Turkish people who can eat at nice restaurants probably think in Euro so again the prices are converted each day into Lira as the exchange rate changes.

Then there are the places patronised by ordinary Turks, where everyone thinks in Lira, but those places are not the sort of place you would choose when on holiday.

zagfles

I don't know why people find this so hard to understand.

Turkey has very high inflation. That's why prices have about doubled since a couple of years ago.

That's also why the GBP/TRY exchange rate has about doubled. Inflation reduces the value of the currency. So a lira is worth less. So obviously, just like you need more lira to buy a meal due to inflation, you need more lira to buy a £. Or a euro. Or anything. So you get more lira when you exchange a £.

The idea that restaurant owners are monitoring the exchange rate movements to see how much they can rip tourists off for is   They increase their prices in Lira because all their costs are increasing because of inflation. Not because of exchange rate movements, which are just a symptom of inflation.

Voyager2002

zagfles said:

The idea that restaurant owners are monitoring the exchange rate movements to see how much they can rip tourists off for is   They increase their prices in Lira because all their costs are increasing because of inflation. Not because of exchange rate movements, which are just a symptom of inflation.

All businesses set their prices on the basis of what their customers are willing to pay. Restaurants are no different, and most good restaurants in Turkey would be catering for customers who think in Euro, as most middle-class Turkish people do. Obviously tourist-oriented restaurants have a pretty shrewd idea of how much their customers are willing to pay, and set their prices accordingly.

Obviously they are very aware of their changing costs, and so would no longer serve any dish on which they would lose money. However they do not limit price rises to reflect cost increases if they think their customers would be willing to pay more than this. 

zagfles

Voyager2002 said:

zagfles said:

The idea that restaurant owners are monitoring the exchange rate movements to see how much they can rip tourists off for is   They increase their prices in Lira because all their costs are increasing because of inflation. Not because of exchange rate movements, which are just a symptom of inflation.

All businesses set their prices on the basis of what their customers are willing to pay. Restaurants are no different, and most good restaurants in Turkey would be catering for customers who think in Euro, as most middle-class Turkish people do. Obviously tourist-oriented restaurants have a pretty shrewd idea of how much their customers are willing to pay, and set their prices accordingly.

Obviously they are very aware of their changing costs, and so would no longer serve any dish on which they would lose money. However they do not limit price rises to reflect cost increases if they think their customers would be willing to pay more than this. 

You really believe that? Is that how you act when a customer, you have a price you're willing to pay and just buy the first thing you see at that price? 

I've just booked some flights. I'd have been willing to pay £150. I saw some for £150. But I did a 5 min search and found some for £50. So I only paid £50. Despite being willing to pay £150.

Competition is what predominantly drives prices, not what customers are willing to pay. Except perhaps in a monopoly or where there's a cartel, or stuff there's a shortage of where demand vastly exceeds supply.

But Turkish tourist resorts are incredibly competitive, and there's no shortage of restaurants. They often employ people to collar passers by in the street and persuade them to dine in their restaurant.

Willingless to pay may act as a cap but underlying costs act as a collar and in a competitive market the collar will drive prices more. So prices are more likely to move with inflation than exchange rates. 

Although it's a bit moot, as inflation will be the primary driver of exchange rate changes anyway.

Voyager2002

zagfles said:

Voyager2002 said:

zagfles said:

The idea that restaurant owners are monitoring the exchange rate movements to see how much they can rip tourists off for is   They increase their prices in Lira because all their costs are increasing because of inflation. Not because of exchange rate movements, which are just a symptom of inflation.

All businesses set their prices on the basis of what their customers are willing to pay. Restaurants are no different, and most good restaurants in Turkey would be catering for customers who think in Euro, as most middle-class Turkish people do. Obviously tourist-oriented restaurants have a pretty shrewd idea of how much their customers are willing to pay, and set their prices accordingly.

Obviously they are very aware of their changing costs, and so would no longer serve any dish on which they would lose money. However they do not limit price rises to reflect cost increases if they think their customers would be willing to pay more than this. 

You really believe that? Is that how you act when a customer, you have a price you're willing to pay and just buy the first thing you see at that price? 

I've just booked some flights. I'd have been willing to pay £150. I saw some for £150. But I did a 5 min search and found some for £50. So I only paid £50. Despite being willing to pay £150.

Competition is what predominantly drives prices, not what customers are willing to pay. Except perhaps in a monopoly or where there's a cartel, or stuff there's a shortage of where demand vastly exceeds supply.

But Turkish tourist resorts are incredibly competitive, and there's no shortage of restaurants. They often employ people to collar passers by in the street and persuade them to dine in their restaurant.

Willingless to pay may act as a cap but underlying costs act as a collar and in a competitive market the collar will drive prices more. So prices are more likely to move with inflation than exchange rates. 

Although it's a bit moot, as inflation will be the primary driver of exchange rate changes anyway.

My willingness to pay a given price depends on what I know about what the competition is offering. Obviously there is a limit to how much effort I am willing to put into finding out about possible prices.

Obviously restaurant managers (and everyone else who runs a business) know this, and then they are setting their prices they take note of what their nearby competitors are charging. In Turkey, in practice, this is probably agreed between them. 

zagfles

Voyager2002 said:

zagfles said:

Voyager2002 said:

zagfles said:

The idea that restaurant owners are monitoring the exchange rate movements to see how much they can rip tourists off for is   They increase their prices in Lira because all their costs are increasing because of inflation. Not because of exchange rate movements, which are just a symptom of inflation.

All businesses set their prices on the basis of what their customers are willing to pay. Restaurants are no different, and most good restaurants in Turkey would be catering for customers who think in Euro, as most middle-class Turkish people do. Obviously tourist-oriented restaurants have a pretty shrewd idea of how much their customers are willing to pay, and set their prices accordingly.

Obviously they are very aware of their changing costs, and so would no longer serve any dish on which they would lose money. However they do not limit price rises to reflect cost increases if they think their customers would be willing to pay more than this. 

You really believe that? Is that how you act when a customer, you have a price you're willing to pay and just buy the first thing you see at that price? 

I've just booked some flights. I'd have been willing to pay £150. I saw some for £150. But I did a 5 min search and found some for £50. So I only paid £50. Despite being willing to pay £150.

Competition is what predominantly drives prices, not what customers are willing to pay. Except perhaps in a monopoly or where there's a cartel, or stuff there's a shortage of where demand vastly exceeds supply.

But Turkish tourist resorts are incredibly competitive, and there's no shortage of restaurants. They often employ people to collar passers by in the street and persuade them to dine in their restaurant.

Willingless to pay may act as a cap but underlying costs act as a collar and in a competitive market the collar will drive prices more. So prices are more likely to move with inflation than exchange rates. 

Although it's a bit moot, as inflation will be the primary driver of exchange rate changes anyway.

My willingness to pay a given price depends on what I know about what the competition is offering. Obviously there is a limit to how much effort I am willing to put into finding out about possible prices.

Obviously restaurant managers (and everyone else who runs a business) know this, and then they are setting their prices they take note of what their nearby competitors are charging. In Turkey, in practice, this is probably agreed between them. 

I doubt it. Then all restaurants would sell at the same prices. There is genuine competition, at least in the places I've been.

Anyway it's all moot as inflation and the exchange rate movements pretty much correlate.