Inflation hits 83% as Erdogan wants lowest interest rates
Turkish inflation accelerated last month to a level last seen in mid-1998, fueled by an experimental central bank policy that has chased away foreign investors and eroded the lira’s value.
Consumer prices rose 83.5% on an annual basis in September, according to data released on Monday by Turkey’s statistics agency, in line with the median forecast in a survey. Monthly inflation quickened 3.1%, slightly less than expected in a separate poll.
Price index that excludes volatile items speeds past 68%. The acceleration follows a series of interest-rate cuts this year by central bank Governor Sahap Kavcioglu that threaten to pile even more pressure on inflation.
The surprise policy turn has made Turkey an outlier among global monetary authorities, most of which are aggressively tightening to get a grip on price increases.
As a result, Turkey has the world’s deepest negative interest rates when adjusted for inflation, depriving it of a buffer to protect local assets against a selloff. The lira has lost more than 50% of its value against the dollar in the past 12 months.
Selva Bahar Baziki, an economist said “Turkey’s annual consumer price inflation surged higher in September and that’s not the end of it. We expect inflation to continue to rise in October, with the central bank’s ongoing easing cycle to feed further into price gains. Against a backdrop of rate hikes in developed and peer emerging economies, the impact on the currency and the feed-back into inflation may be faster and higher in the current cycle”.
Turkey’s central bank said in its latest forecast in July that inflation should peak somewhere between 80% and 90% by October. The government estimates that it’ll slow to 65% at the end of this year.
But President Recep Tayyip Erdogan has insisted on even lower interest rates, saying they’ll help reduce inflation. It’s an argument that contradicts conventional economic theory — and which, so far, hasn’t been validated by real-world experience, least of all in Turkey. He has called for the benchmark rate to be cut to below 10% by year-end, from 12% currently.
Annual inflation for food and non-alcoholic beverages, which make up a quarter of the consumer basket, was 93.1% in September, up from 90.3% in August.
Housing costs saw the fastest acceleration among main inflation components, increasing by 10% on a monthly basis. Annually prices grew 85%.
Energy prices rose by 133% from September 2021. Transportation costs increased by 118% in the same period.
Inflation hits 83% as Erdogan wants lowest interest rates
Turkish officials reject criticism that rampant price increases are a result of monetary policy errors, instead blaming Russia’s invasion of Ukraine for a global rally in commodities including energy and food. Yet even when the impact from such volatile items is excluded, annual Turkish inflation stood at 68.1% last month.
The experimental policies have already pushed inflation above 100% in parts of the country.
Consumer prices in Istanbul, Turkey’s most populous city, more than doubled from a year earlier, according to a retail price index released on Saturday.
