A warning from Turkey – this is what hyperinflation looks like

Meanwhile, crumbling confidence in Turkey has worsened the inflation backdrop. The currency has suffered a series of crises in recent years after investors and local residents took fright at Erdoğan’s erratic economic policies.

The volatile lira has plunged by more than a fifth versus the dollar so far this year and almost 80pc over the last five years, pushing up import costs and stoking price growth. Meanwhile, inflation expectations have run out of control and foreign investors have deserted the country.

Tim Ash, emerging markets sovereign strategist at BlueBay Asset Management, says foreign institutional investors have “just given up” despite Turkey having some “hidden positives”, such as favourable demographics, low deficits and “solid” private banks.

“Basically they’re long gone, the local market exposure is the lowest it’s been in 20 years,” he says.

“It should be a huge success story but his weird views on interest rates makes people very uncomfortable and obviously the damage is reflected in high inflation.”

Officials have also been fighting a dollarisation effect in Turkey as residents plough their money into safer foreign currencies. Erdoğan has pleaded with Turks to convert their foreign currency savings back into lira, promising to guarantee any losses for holders of the lira if it plunges against rivals.

As the 2023 election comes into view and Erdoğan struggles in the polls, what can turn the tide for the Turkish president?

“Semi-reasonable macroeconomic policies would be a wonderful start,” says Gurkaynak.

“The loss of faith in policy making and the expectation that bizarre policies will be imposed again once markets stabilise have become entranced and this is a political problem.”

Erdoğan trails many of his presidential rivals, including Istanbul mayor Ekrem İmamoğlu, who is touted as a potential top challenger. But ahead of next June’s vote, economists warn Turkey faces high inflation for some time.

Ercan Erguzel at Barclays predicts price rises could peak at almost 100pc in October if the lira faces more “major” pressure on currency markets.

Capital Economics’ Tuvey argues Turkey is at risk of a “full-blown” economic crisis, sparking the threat of social unrest.

“The policies don’t really add up properly,” he says. “It might take another five years or more, but I think you would end up with a combined banking, currency and sovereign debt crisis. It does feel like it’s going down that route.”

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