Turkey’s inflation jumps to 20-year high as energy prices surge

Turkey’s annual consumer inflation leapt to a 20-year high of 61.14 per cent in March, data showed on Monday, fuelled by rising energy and commodity prices following the Russia-Ukraine conflict which is compounding the impact of a lira crash late last year.

Inflation has been surging since last autumn, when the lira slumped after the central bank (CBRT) launched a 500 basis-point easing cycle long sought by President Tayyip Erdogan.

On a month-on-month basis consumer prices rose 5.46 per cent, the Turkish Statistical Institute said, compared with a Reuters poll forecast of 5.7 per cent. Annually, consumer price inflation was forecast to be 61.5 per cent.

“CBRT policies are just not working in countering inflation,” said Tim Ash at BlueBay Asset Management. “Indeed, I think the overwhelming consensus is that the unorthodox policy settings of the CBRT are a major cause of inflation.

“The war in Ukraine is just making things that much worse,” Ash added, nothing the bank had not hit its annual inflation target of 5 per cent since 2011.

The inflation data had little impact on the lira, which was 0.1 per cent weaker against the dollar at 14.71. It tumbled 44 per cent in 2021 and is another 10 per cent weaker so far this year.

TRANSPORT PRICES DOUBLE

Figures also showed the producer price index climbed 9.19 per cent month-on-month in March for an annual rise of 114.97 per cent.

The monthly rise in consumer price inflation was driven by transportation, which includes petrol prices, and education-related items such as text books and school fees, which rose 13.29 per cent and 6.55 per cent respectively. Rising energy prices in particular have drawn public protests in recent months.

Annually, the transportation group led the rise, up 99.12 per cent, followed by food and non-alcoholic drink prices, at 70.33 per cent, and furniture prices at 69.26 per cent.

Economists marked up inflation expectations at a global level following the Russian invasion of Ukraine, with energy prices hitting multi-year highs as the West sanctioned Moscow. Turkey imports almost all of its energy needs.

Economists see Turkish price rises remaining high for the rest of the year, with the median estimate for year-end inflation at 52.2 per cent, up from 38 per cent in a Reuters poll conducted a month ago.

The government has said inflation will fall with its new economic programme, which prioritises low interest rates to boost production and exports and aims to achieve a current account surplus. Government officials have said inflation will fall to single digits next year.

The central bank held its key policy rate steady at 14 per cent in three meetings this year and said measures and policy steps will prioritise “lira-isation” in the market as it seeks to support the currency.