Turkish inflation has reached its highest level since Recep Tayyip Erdogan came to power almost two decades ago, as the president’s controversial economic management caused a rise in prices.
The country’s consumer price index rose 36 percent year-on-year in December, according to data released by Turkey’s statistical agency on Monday.
This marks the highest level of consumer price increases since September 2002, when Turkey was hit by a financial crisis that paved the way for a landslide election victory for Erdogan’s Party for Justice and Development (AKP) in November of that same year.
The figure, a sharp rise from the previous month’s official inflation rate of 21 percent, comes after President Erdogan ordered the central bank to cut interest rates repeatedly in recent months despite double-digit inflation.
Its insistence that the bank reduce its benchmark lending rate by a total of 5 percentage points to 14 percent since September has led to deep negative real interest rates, which have driven investors away from the Turkish lira and fueled inflation in a highly dependent country of imported energy and goods.
This in turn caused increasing public dissatisfaction with the rising cost of living, and led to an erosion of support for the AKP in opinion polls.
December’s inflation rate, which was higher than the consensus estimate among analysts of 30 percent, was driven by sharp rises in the cost of transportation, which rose nearly 54 percent year-on-year, and food and beverages, which rose close to 44 percent has. sent.
In a sign of the pain inflicted on businesses by the dip in the lira, which has lost about 45 per cent of its value against the dollar in 2021, the producer price index has risen significantly faster at a rate of 80 per cent year-on-year.
Ibrahim Aksoy, an analyst at HSBC in Istanbul, warned that inflation was likely to rise further in the months ahead, predicting that it would reach around 42 per cent in April and May.
The figures were greeted with dismay by the country’s opposition parties. Durmus Yilmaz, a former central bank governor who now serves as a senior official in the IYI party, said inflation was “the root cause” of the country’s economic problems and called for an “urgent stabilization program”.
Ali Babacan, a former Erdogan ally now leading the opposition Deva party, suggested the real inflation rate was even higher than the official figures, describing the country’s statistical agency as “the institute to fiddle with the figures”. He said the rate “does not even come close” to the large energy price increases announced at the beginning of this year, which increased electricity prices by as much as 125 percent for the most intensive commercial users and by about 50 percent for households.
Erdogan, a longtime opponent of high interest rates, rejects conventional economic wisdom that raising the cost of borrowing helps curb high inflation.
The Turkish president has continued to insist, despite growing unrest from Turkey’s business community, that lower tariffs will ultimately help bring price stability as part of what he says is a new economic model aimed at exports, investment and promote job creation.
Erdogan acknowledged the pain inflicted on the public by inflation, and promised last month that his government would not allow workers to be “crushed” by price increases, as he called for a 50 percent increase in the minimum wage in lira terms. announced.
Economists have warned that while a salary increase was needed for the low-paid workers to protect them from rising living costs, such a large increase would itself be inflationary and price increases run the risk of getting out of control.