Turkey’s inflation hits new 24-year high beyond 80 per cent

Turkey’s annual inflation climbed to a fresh 24-year high of 80.21 per cent in August, a bit below expectations according to data on Monday, after the central bank unexpectedly cut interest rates and stoked a nearly year-long cost-of-living crisis.

Inflation has raced higher since last autumn when the central bank gradually cut its policy rate by 500 basis points to 14 per cent, in an unorthodox easing cycle sought by President Tayyip Erdogan that set off a lira crisis.

Despite expectations that inflation will remain lofty, the bank cut rates by another 100 basis points last month to 13 per cent, citing a slowing economy.

Month-on-month, consumer prices rose 1.46 per cent, the Turkish Statistical Institute (TUIK) said, compared to a Reuters poll forecast of 2.0 per cent. Annually, inflation was forecast to be 81.22 per cent.

Last month’s reading was the highest since 81.4 per cent in August, 1998, when Turkey was battling to end a decade of chronically high inflation.

The domestic producer price index rose 2.41 per cent month-on-month in August for an annual rise of 143.75 per cent.

“The central bank has resumed cutting interest rates. This, and the continuing huge PPI inflation rate, are the main worries for Turkey which are steadily, but surely, eroding the lira’s fundamentals,” said Commerzbank’s Tatha Ghose.

The highest annual inflation was seen in transportation, where prices rose 116.87 per cent year-on-year, despite prices in the sector dropping 1.78 per cent month-on-month. In the key food and non-alcoholic drinks sector, prices jumped 90.25 per cent.

After the data at 0840 GMT the lira was unchanged at 18.2240.

Last month’s cut came as world central banks have been raising rates. Ankara has said inflation will fall with its economic programme prioritising low rates to boost production and exports, and achieving a current account surplus.

Finance Minister Nureddin Nebati said that while major global economies were concerned about recession at the same time as inflation rises, Turkey was continuing its “fight against inflation without stopping investment and production”.

DATA QUESTIONED

Opposition lawmakers and economists have questioned the reliability of TUIK’s figures, which TUIK has stood by. Opinion polls show about 50 per cent of Turks believe inflation is far higher than official data.

Data last week showed retail prices in Istanbul leapt 99.9 per cent in Istanbul in August and BlueBay Asset Management strategist Tim Ash highlighted the gap.

“I no longer believe the official (TUIK) series. It looks like fantasy, wishful thinking. How can you conduct economic policy when the basic economic data cannot be trusted?” Ash wrote in emailed comments.

Economic fallout from the war in Ukraine and the lira’s decline have stoked prices. The currency shed 44 per cent last year and is down more than 27 per cent this year.

According to government forecasts released on Sunday, Turkey expects inflation to ease to 65 per cent by end-year. The Reuters poll showed an end-2022 level of just below 71 per cent.