Turkish inflation hits two-year high

Turkish inflation jumped to 18.95 per cent  in July, the country’s statistical authority announced on Tuesday.

This is an increase from 17.53 per cent in June, and the highest rate of inflation the country has seen in two years.

Once again, food prices increase sharply: Food and non-alcoholic beverages were up 24.92 per cent. This is at a time where nearly a third of the country’s population is living below the poverty line and cannot afford necessities.

Transportation was up 24.62 per cent, and furnishings and household equipment increased 22.7 per cent last month. A sharp increase in energy prices also drove the increase.

Last Thursday, Turkey’s Central Bank raised its year-end inflation forecast to 14.1 per cent for 2021, up from 12.2 per cent in its previous report.

“All in all, while the CBT revised its inflation forecasts as expected, the trajectory is relatively optimistic compared with the current market consensus, despite strong favourable base effects in the second half of the year. The policy stance, on the other hand, has remained in line with what was laid out at the last MPC meeting, focusing on the positive real policy rate. The CBT will likely focus on the right time for a first rate cut, with challenging inflation dynamics, fragile capital flows and the exchange rate outlook keeping the bank cautious going forward,” commented ING analysts.

On a monthly basis, the consumer price index climbed by 1.80 per cent in July.

President Recep Tayyip Erdogan has blamed “structural factors” as driving inflation higher, and is determined to reduce interest rates as soon as possible, a move which he believes will lower inflation.

In fact, the Turkish lira gained slightly on the announcement, as analysts now believe that it will be impossible for the central bank to reduce interest rates at its next monetary policy meeting in September. On Wednesday, however, the lira was sliding back toward 10 to the euro.

“It very much looks like the central bank’s promise to keep real rates positive will be tested with the headline rate very likely to push through the 19 per c ent policy rate,” Tim Ash of BlueBay Asset Management said in a tweet.

Central Bank Governor Sahap Kavcioglu maintained his forecast of full-year inflation falling to 12.1 per cent by year-end. Analysts, however, have reached a consensus that yearend inflation will be from 15-16 per cent at least.

The Inflation Research Group, an independent group of academics, has determined that the real inflation rate in Turkey is closer to 40 per cent. The group’s own index relies on price data gathered from online retailers and updated several times a day, says Veysel Ulusoy, the academic heading the project. Its basket of goods overlaps largely with that of TurkStat, but excludes items like alcohol, education and health, where the government is able to control prices, the Economist reported.

The Turkish government is seeking to suppress the group, and is taking it to court.