A seller waits for customers at his stall at a local market in Fatih district in Istanbul, Turkey.
Turkey’s annual inflation rate jumped to a 24-year high of 78.62 per cent in June, data showed on Monday, just above forecast, driven by the impact of the Ukraine war, soaring commodity prices and a slide in the lira since a December crisis.
Inflation has surged since last autumn, when the lira slumped after the central bank gradually cut its policy rate by 500 basis points to 14 per cent, in an easing cycle sought by President Tayyip Erdogan to boost economic growth.
The latest figures showed consumer prices rose 4.95 per cent in June, compared to a Reuters poll forecast of 5.38 per cent. Annually, consumer price inflation was forecast to be 78.35 per cent.
June consumer price inflation was driven by transportation prices, which surged 123.37 per cent, and food and non-alcoholic drinks prices, which jumped 93.93 per cent, data from the Turkish Statistical Institute (TUIK) showed.
It was the highest annual inflation reading since September 1998, when annual inflation hit 80.4 per cent and Turkey was battling to end a decade of chronically high inflation. The lira was unchanged at 16.78 per cent after the data.
Inflation has been further stoked this year by the economic fallout from Russia’s invasion of Ukraine.
Erdogan said last week he expects inflation to come down to “appropriate” levels by February-March next year. The central bank, which kept the benchmark interest rate steady at 14 per cent despite the rise, said inflation would drop to 42.8 per cent by end-2022.
Witold Bahrke, a senior macro strategist at Nordea Asset Management based in Denmark, said Turkey was “in a league of its own” among emerging markets (EM) when it came to inflation due to what he said was its lack of credible policy response.
“Inflation is a general issue for EM and in Turkey you end up with a toxic mix as we also have a policy issue,” Bahrke said, adding that he expected some further weakening of the lira.
Opposition lawmakers and economists have questioned the reliability of the TUIK data, claims that TUIK has dismissed. Polls show Turks believe inflation is far higher than the official data suggests.
Last week’s inflation poll also showed inflation was seen declining to just below 70 per cent by end-2022.
The lira currency shed 44 per cent against the dollar last year and is down 21 per cent this year.
The domestic producer price index climbed 6.77 per cent month-on-month in June for an annual rise of 138.31 per cent.
Meanwhile Turkey’s annual inflation rate jumped to a 24-year high of 73.5 per cent in May, fuelled by the war in Ukraine, rising energy prices and a tumbling lira — though the figure was slightly lower than economists had feared.
Inflation has surged since last autumn, when the lira slumped after the central bank launched a 500 basis-point easing cycle sought by President Tayyip Erdogan.
The latest figure surpassed the 73.2 per cent touched in 2002 and is the highest since October 1998, when annual inflation was 76.6 per cent and Turkey was battling to end a decade of chronically high inflation. Nevertheless, the consensus forecast was for annual inflation to rise to 76.55 per cent.
Month-on-month consumer prices rose 2.98 per cent, the Turkish Statistical Institute (TUIK) said on Friday, compared to a Reuters poll forecast of 4.8 per cent.
Transport and food costs have soared by 108 per cent and 92 per cent respectively over the last year, reflecting a deepening economic crisis for Turks struggling to afford basic goods. The domestic producer price index climbed 8.76 per cent month-on-month in May for an annual rise of 132.16 per cent.
The lira weakened 0.25 per cent to 16.5050 against the dollar touching its weakest since December. The local currency tumbled 44 per cent in 2021 and another 20 per cent this year.
Despite the highest annual rate in Erdogan’s two decades in power, Finance Minister Nureddin Nebati said on Twitter monthly inflation readings are trending lower in a positive sign.
Nebati has previously said inflation will fall to single digits in time for next year’s election under an economic programme that prioritises low interest rates, high production and exports, and a current account surplus.
However the trade deficit widened 157 per cent year-on-year in May to $10.7 billion, mainly due to energy imports. The central bank forecasts single digit inflation by end-2024.
Economists see inflation remaining high for the rest of 2022 and ending the year at 63 per cent, based on a median estimate, up from 52 per cent in last month’s poll.
“It is not possible for Turkey, which has gone beyond the rules of the economic doctrine, to solve its key problem of high inflation with its current policies,” said economist Arda Tunca, a columnist at PolitikYol.
Opposition lawmakers and economists have questioned the reliability of TUIK’s figures, claims TUIK has dismissed. Polls show Turks believe inflation is far higher than official data.
In a surprise, TUIK said it stopped publishing average prices of individual items in the inflation basket, which had been listed in a monthly table since 2003.