Turkish inflation accelerated to the fastest in two-and-a-half years in September when President Recep Tayyip Erdogan intensified his unconventional efforts to bring rising prices down.
Data released by the Turkish official statistics agency on Monday showed that the consumer price index rose by 19.58 percent last month, up from 19.25 in August. The rate is almost four times the central bank’s official inflation target and the largest annual increase since March 2019.
Erdogan, whose ruling party is suffering from historically low opinion polls, has seen growing dissatisfaction among the public over the rising cost of living.
But the Turkish leader, who, contrary to economic orthodoxy, believes high interest rates cause inflation rather than curb it, has also put the country’s central bank under pressure to cut borrowing costs, even amid rising prices.
The bank lowered its benchmark lending rate last month. The decision, which left Turkey with the deepest negative interest rate of any emerging market, put new pressure on the captured Turkish lira.
Public anger was particularly focused on food prices, which accelerated even faster than the main inflation rate. According to the latest data, the price of food rose by almost 29% in September.
Erdogan blames rising prices for “opportunists” in the food and retail sector. Last month, his government announced a new round of investigations into supermarket chains, accusing them of accepting ‘unreasonable’ price increases.
The Turkish president said on Sunday that he had ordered agricultural cooperatives to open about 1,000 new branches across the country to provide ‘suitable’ prices for basic goods.
“We have ordered that about 1,000 of these businesses be started around Turkey, covering an area of 500 square meters,” he said. “These are places where prices are suitable for our citizens’ budgets.”
Erdogan, who built much of his early political success as a result of increasing prosperity, has over the past year increasingly developed a reputation for eccentric and volatile solutions to economic problems.
In 2018, after a currency crisis that wiped out nearly 30 percent of the value of the lira, the government launched a campaign encouraging retailers to keep their prices down. The following year the government started municipal management “people’s vegetable ”stalls in big cities in an effort to combat what Erdogan called ‘food terrorism’.
Analysts warn that the combination of high inflation and low interest rates could lead to new pressure on the Turkish lira, which has been above the record low of nine to the dollar in recent weeks.
“The further rise in headline and core inflation last month will make the central bank think, but we doubt it will prevent it from continuing with further interest rate cuts,” said London bank economist Jason Tuvey. based consultant Capital Economics, in a note to clients written after Monday’s data. “Political pressure on the institution to lower rates seems to be making decisions.”