Turkey’s annual inflation rate jumps to a 24-year high of 73.5%

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A vendor waits for customers at his stall in a street market in Istanbul, Turkey. Reuters

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.

The institute said it will publish an index table showing changes in item groups, as part of Eurostat compliance.

“Establishing TUIK’s structure independent from government is as important as the central bank’s independence,” said Mahfi Egilmez, another Turkey-based economist said on Twitter. “Accurate and reliable data production is the first and foremost prerequisite to implementing correct policies.”

Turkey’s consumer price index has surged since last autumn as the lira weakened after the central bank in September embarked on a 500 basis-point easing cycle long sought by President Tayyip Erdogan.

The lira’s slide and rising food and energy prices pushed inflation to 69.97 per cent in April, the highest in 20 years, despite tax cuts on basic goods and government subsidies for some electricity bills to ease the burden on household budgets.

The median estimate of 14 institutions in the Reuters poll for annual consumer price inflation in April was 76.55 per cent, with forecasts ranging between 72.50 per cent and 80.40 per cent.

That would make it the highest annual inflation reading since October 1998, when it hit 76.6 per cent.

The median monthly estimate was 4.80 per cent, in a range of 2.40 per cent and 7.10 per cent.

Economists have steadily revised their year-end estimates higher so far, with the median estimate of 15 economists for inflation at the end of the year now standing at 63.50 per cent – some 11.5 percentage points higher than the median in the April poll.

Forecasts for the year-end figure ranged from 43.7 per cent to 120 per cent.

Credit Suisse said there were significant upside risks to its year-end inflation forecast, given that the central bank is likely to keep interest rates unchanged in the foreseeable future.

“This means that the real policy rate will move deeper into negative territory in the coming period, leaving the lira vulnerable to further depreciation and keeping the risks to our inflation forecasts firmly to the upside,” it said in a note.

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