Mon. Jan 24th, 2022

The annual consumer inflation rate rose to 36.08 percent last month and food and energy prices soared.

By Bloomberg

Turkish inflation rose to a 19-year high in December, driven by a slump in the lira and President Recep Tayyip Erdogan’s drive for cheaper loans.

The annual consumer inflation rate rose to 36.08% last month, the highest since September 2002 and sharply higher from 21.31% in November. The figure far exceeded the 27.36% median estimate in a Bloomberg survey of 19 analysts.

Turkey’s central bank has lowered its benchmark interest rate by 500 basis points since September in a series of steps encouraged by Erdogan, which has attacked rising borrowing costs as a challenge to businesses and a brake on economic growth. The cuts have put the lira in a spin that has fueled consumer price hikes.

The lira recovered from its losses in December after Erdogan introduced a mechanism that promises to compensate holders of the lira when the currency weakens to a certain level. However, the currency remains about 31% weaker than it was on September 23, when the central bank began lowering interest rates.

The lira's decline has kept Turkey's inflation in double digits since late 2019

The acceleration in inflation takes Turkey’s benchmark interest rate adjusted for inflation to negative 22.08%, the lowest real return among emerging markets.

The decision to reduce the central bank’s benchmark rate by five percentage points led to a 44% drop in the lira last year, making it the worst of all major currencies tracked by Bloomberg. The currency also weakened after the December Inflation Report and traded 2.3% lower from 10:30 am local time.

“We expect headline inflation to accelerate by May-June,” said Ozlem Bayraktar Goksen, chief economist at Tacirler Yatirim in Istanbul. “We do not see a change in policy rate in the first quarter in line with the central bank’s guidance.”

Below are more details of the data:

  • Annual food price increases, which account for about a quarter of the consumer basket, reached 43.8% in December, well above the central bank’s official estimate of 23.4%
  • The inflation rate in energy rose to 42.93% in December from 32.14% the previous month
  • A core inflation index showed that prices excluding volatile items such as food and energy rose an annual 31.88% compared to 17.62% in November, a sign of strong inflationary pressures underlying the main figure.

Turkey CPI shows broad-based jump in prices in December

Although rising inflation harmed Erdogan’s popularity ahead of the 2023 election, he insisted he would pursue a policy shift he said was aimed at boosting manufacturing and exports and influencing international markets on Turkish monetary policy. reduce.

The central bank expects inflation to follow a volatile rate, although it expects its looser monetary stance to see inflation resume its downward trend “once temporary effects disappear.”

The bank has repeatedly said that transient factors rather than lower interest rates are behind the latest rise in prices. Turkey’s monthly inflation will begin to slow in January as the lira stabilizes and the government strikes at unjustified price increases, Finance Minister Nureddin Nebati said in a television interview on Wednesday.

The central bank will hold its next rate-setting meeting on 20 January and publish its first inflation report of the year on 27 January.

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