Turkey’s inflation soars to 70 per cent, hitting a two-decade high

Turkey’s annual inflation jumped to a two-decade high of 69.97 per cent in April — according to data released on Thursday — fuelled by the Russia-Ukraine conflict as well as rising energy and commodity prices after last year’s lira crash.

The surge in prices has badly strained households just over a year before presidential and parliamentary elections that could bring the curtain down on President Recep Tayyip Erdoğan’s long rule.

Mr Erdogan first came to power as prime minister in 2003 before switching the country to a presidential system, and the unorthodox interest rate cuts made last year under pressure from him have been blamed for lighting a fire under inflation.

Month-on-month, consumer prices rose 7.25 per cent, the Turkish Statistical Institute said, compared to a Reuters poll forecast of 6 per cent.

Annually, consumer price inflation was forecast to be 68 per cent.

Last year’s currency slide was triggered by a 500-basis-point easing cycle that began last September under pressure from Mr Erdogan, prompting the sustained surge in consumer prices that was further stoked by fallout from Russia’s invasion of Ukraine.

The surge in consumer prices was driven by a 105.9 per cent leap in the transportation sector, which includes energy prices, and a 89.1 per cent jump in food and non-alcoholic drink prices, the data showed.

Month-on-month, food and non-alcoholic drink prices rose the most, 13.38 per cent, and house prices rose 7.43 per cent.

The lira dipped 0.9 per cent, to 14.8525 against the dollar, after the release of the data.

Presidential and parliamentary elections are due by June 2023 and opinion polls show Mr Erdogan’s support declining.

“The really remarkable thing here is that opinion polls still suggest that the next election is still in the balance. Perhaps that says as much about the opposition as Erdogan,” Mr Ash said.

Little reprieve

The government has said inflation will fall under its new economic program, which prioritises low interest rates to boost production and exports, with the goal of achieving a current account surplus.

However, economists see inflation remaining high for the rest of 2022, due to the war, with the median estimate for inflation at year-end standing at 52 per cent.

Turkey’s current account deficit also widened sharply at the start of the year.

Last week’s Reuters poll showed annual inflation was expected to be 52 per cent by year-end.

Inflation was last at current levels in 2002, having hit 73.1 per cent in February of that year.

Inflation has continued to rise, despite tax cuts on basic goods and government subsidies for some electricity bills to ease the burden on household budgets.

Last week, Turkey’s central bank forecast annual inflation would peak at around 70 per cent by June before declining to near 43 per cent by year’s end and into single digits by the end of 2024.

The central bank held its key policy rate steady, at 14 per cent, in four meetings this year and said that measures and policy steps would prioritise so-called liraization in the market.

Meanwhile, Turkey’s domestic producer price index climbed 7.67 per cent, month-on-month, in April for an annual rise of 121.82 per cent.

Reuters