Turkey’s inflation surges to two-decade high of 48.7%
ISTANBUL, Feb 3 (Reuters) – Turkey’s annual inflation soared to a 20-year high of 48.69% in January, data showed on Thursday, fuelled by President Tayyip Erdogan’s push for unorthodox interest rate cuts and a resulting crash in the currency late last year.
Consumer prices jumped 11.1% from the previous month, the Turkish Statistical Institute (TUIK) said, eating deeply into Turks’ earnings. Both measures were more than expected in a Reuters poll which forecast 9.8% monthly and 46.7% annually.
The lira weakened 44% last year as the central bank slashed interest rates by 500 basis points since September to 14%, under Erdogan’s drive to prioritise credit and exports.
Partly in response to the currency turmoil, the government raised administered prices this year including for gas, electricity, road tolls and bus fares, while the monthly minimum wage was hiked 50%.
Transport-related prices soared 68.9% year-on-year, while food and drinks prices jumped 55.6%, driving inflation to its highest level in Erdogan’s nearly two decades in power.
The combination of inflation and currency depreciation has rattled the big emerging market economy, upended household and corporate budgets, and deepened poverty ahead of elections scheduled for mid-2023.
Inflation should surpass 50% this month and plateau around 55% for most of 2022 before ending the year at 33%, Goldman Sachs said.
UNRESPONSIVE LIRA
The lira dipped 0.7% to 13.58 against the dollar by 1032 GMT. It has stabilised after wild swings – from 18.4 to 10.25 – in December due in part to state market interventions and a deposit-protection scheme. read more
Turkey’s dollar-denominated sovereign bonds slipped while spreads over U.S. safe haven Treasury bonds (.JPMEGDTURR) widened to 559 basis points. The cost of insuring exposure through credit default swaps edged up.
“We have a policy rate of 14% and inflation at 48%… and a government that covers for the FX gap. It’s a bad cocktail for the long-term,” said Ipek Ozkardeskaya, a senior analyst at Swissquote.
The lira “can only hit back as there is a serious deviation between what should be done and what is being done. But for now, I am stunned to see the lira as unresponsive to the news.”
The producer price index soared 10.45% month-on-month in January for an annual rise of 93.53%, the data showed.
In an interview with Japan’s Nikkei, Finance Minister Nureddin Nebati predicted inflation will remain below 50% and peak in April.
On Saturday, Erdogan replaced the head of TUIK. Opposition parties and some economists have cast some doubt on the agency’s figures, claims TUIK has dismissed. Polls show Turks believe inflation is higher than official data suggests.
As expected, TUIK adjusted its basket weightings for 2022 trimming that of housing, water, electricity, gas and other fuels to 14.12% from 15.36% last year.
Additional reporting by Daren Butler and Karin Strohecker; Editing by Jonathan Spicer and Frank Jack Daniel
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