Women shop at a local market in Istanbul, Turkey.
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 as the fallout of the Russia-Ukraine conflict compounds the impact of the lira’s plunge last year.
Inflation has surged since last autumn, when the lira slumped after the central bank (CBRT) launched a 500 basis-point easing cycle sought by President Tayyip Erdogan.
Month-on-month consumer prices rose 5.46 per cent, the Statistical Institute said, just below a Reuters poll forecast of 5.7 per cent. The annual consumer price inflation forecast was 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 data had little impact on the lira, which weakened 0.15 per cent to 14.715 against the dollar. The local currency tumbled 44 per cent in 2021 and another 10 per cent this year.
The government has said inflation will fall to single digits next year under its new economic programme – prioritising low interest rates to boost production and exports – aimed a achieving a current account surplus.
However, data on Monday showed the trade deficit widened 77 per cent year-on-year in March to $8.24 billion, with a 156 per cent increase in the value of energy imports, threatening to derail the current account goal.
Haluk Burumcekci, founder of Burumcekci Consulting, said inflation could peak at 70 per cent-75 per cent even if the lira does not weaken from its current level, only falling with the base effect in the last months of the year.
“It will not at all be easy for the CBRT to maintain its loose monetary policy stance,” he said.
Consumer price inflation was driven by transportation, including petrol prices, and education prices, which rose 13.29 per cent and 6.55 per cent respectively. Rising energy prices have drawn public protests in recent months.
Annually, transportation prices rose 99.12 per cent and food and non-alcoholic drink prices were up 70.33 per cent.
Economists marked up inflation expectations globally following Russia’s invasion of Ukraine, with energy prices hitting multi-year highs as the West sanctioned Moscow. Turkey imports almost all of its energy needs.
The Reuters poll forecast year-end inflation of 52.2 per cent, up from 38 per cent in last month’s poll.
Producer prices climbed 9.19 per cent in March, or 114.97 per cent annually.
The World Bank said earlier that it had approved a loan of $341.27 million as part of a project to support Turkey’s agricultural sector and encourage the use of “climate-smart technologies.”
The project aims to improve collection and use of information on 14 million hectares of soil and land, enhance disease surveillance in animals and help reduce carbon emissions, the World Bank said.
Agricultural expansion in Turkey is creating significant environmental and climate pressure due to the inefficient use of land, water and energy, while accounting for more than 13 per cent of Turkey’s greenhouse gas emissions, it said.
“We hope this partnership will contribute to putting the agriculture sector on a more competitive and sustainable growth path and help Turkey achieve net zero carbon emissions by 2053,” said Auguste Kouame, World Bank Country Director for Turkey.
Turkey ratified the Paris climate agreement late last year, and has said it aims to achieve net zero carbon emissions by 2053.
Meanwhile a potential gas pipeline project between Turkey and Israel is not possible in the short-term and building an alternative system to cut dependence on Russia will not happen quickly, Turkish Foreign Minister Mevlut Cavusoglu said on Thursday.
Turkey and Israel have in recent weeks been working to mend their long-strained ties, and energy has emerged as a potential area of cooperation.
Turkish media on Thursday reported President Tayyip Erdogan as saying he was “very, very hopeful” for energy cooperation with Israel, and he hoped to discuss the issue with Israeli Prime Minister Naftali Bennett.
“If we discuss this subject with Bennett after Ramadan and we take steps immediately, the process will accelerate for Israel-Turkey cooperation, east Mediterranean crude oil and natural gas,” he told reporters on his plane returning from a trip to Uzbekistan.
The Muslim holy month of Ramadan begins on April 2.
The regional rivals expelled ambassadors in 2018 and have often traded barbs over the Palestinian conflict, Turkish support of the Hamas militant group, which runs Gaza, and other issues.