Turkish central bank: Inflation up to 81%, prices to continue rising
The Turkish inflation rate is expected to peak at over 80% soon, as Erdogan attempts to slow down economic development before the elections.
The Turkish inflation rate is due to peak above 80% soon, with fear that it will leave price expectations deep-rooted at high levels for years to come.
Turkey has generally demonstrated resilience to the fastest inflation in over two decades despite inaction by the central bank this past year. Yet with an economy of $820 billion, some parts of the country are seeing pressures moderate sharply, with rates of input cost and selling price inflation in manufacturing in August at the weakest in over a year.
According to the median forecast in a Bloomberg survey of economists, on a monthly basis, inflation in August recorded 2%, the smallest increase since September 2021, with annual inflation possibly climbing to just over 81%, more than 16 times the central bank’s official target and up nearly 80% a month earlier per another poll. Turkey’s statistics service is due to publish the data on Monday.
Bloomberg economics said: “Underlying trends signal increasing inflation inertia as core indicators climbed in July to the highest annual rate in data available. Looking ahead, we expect inflation to increase further in September before starting to retreat and ending the year higher than the central bank’s projection.”
Inflation in Turkey was mainly stable from 2004 to 2016, but due to policies that prioritized economic development and cheap lending at the expense of the Turkish lira, price stability caught up to the rounds of inflation that culminated in this year’s burst. The longer-term damage expected from the crisis may be in the way it curves price expectations.
The central bank in August concluded in a survey that respondents anticipate inflation for the next two years to be over 24%, and the government raised its prediction for price growth from 9.8% to 65% in 2022 - showing a gradual slowing of about 25% next year, according to a new 3-year plan published in the Official Gazette on Sunday. It’s not expected to be below 10% until 2025.
Turkish officials so far have brushed off the inflation impacts, calling the price gains transitory and blaming the war in Ukraine for causing the global increase in food and commodity costs. Nevertheless, Turkey has the world’s deepest negative interest rates when adjusted for inflation, and with the lira down approximately 27% against the dollar this year, Turkey has become the worst performer in emerging markets.
Economy Minister Nureddin Nebati "promised" last month that consumer prices will begin to fall in December. According to an official report, headline inflation was driven by a 123.4 % increase in transportation costs and a 94% increase in non-alcoholic beverages, while the price of home products increased by 81.1%.
Turkish inflation has been on the rise, with the core index reaching close to 62% in July, tracing back to a record high in data in 2004 and it is expected to continue rising much higher. Retail inflation in Turkey’s most prosperous city Istanbul last month skyrocketed shockingly to almost 100% from a year earlier. It rose to its highest level since 1998 in May, reaching 73.5% on an annual basis, and the country's military offensive in northern Syria weakened the Turkish lira further, which was trading at 16.49 to the dollar in June. Over the last year, the currency has lost approximately 48% of its value.
Erdogan pleads for support
An economic slowdown ahead is posing another threat to the Turkish economy. Major banks from Goldman Sachs Group Inc. to Morgan Stanley revised this year's outlook for Turkey after faster-than-expected growth in the second quarter, and the risk of a near recession in Europe is one of the factors that can impede the economy in the rest of the year.
The central bank already cut down its benchmark rate last month by 100 basis points to 13% after being worried by “some loss of momentum”. Consumer prices could remain under pressure again if authorities unleash more stimulus ahead of elections, which are less than a year from now. For the time being, Turkish President Recep Tayyip Erdogan is pleading for “some patience and more support,” adding last week that inflation will start to decline at the start of the new year.
Both Erdogan and his PM Ahmet Davutoglu have announced their plans to run for the presidency in 2023, although the Turkish President has become less popular amid the soaring inflation that has been hitting the country.