Turkey’s inflation hits a 20-year high at 61% as energy and food costs soar

Turkey’s official inflation rate hit a 20-year high as rising energy and food prices compound economic challenges facing President Recep Tayyip Erdogan.

The consumer price index rose 61 percent year-on-year in March, up from 54 percent in February, the highest since March 2002, according to Turkey’s Statistics Institute.

Food costs, which make up about a quarter of Turkey’s inflation basket, rose 70 percent year-on-year. Energy costs rose nearly 103 percent and transportation costs 99 percent as a surge in commodity prices prompted by Russia’s invasion of Ukraine took its toll on a country that imports almost all of its oil and natural gas supplies.

Separate data released on Monday showed that the producer price index, which reflects costs to manufacturers, rose nearly 115 percent year-on-year.

Reacting to the inflation numbers, Finance Minister Nureddin Nebati said his country was going through an “extraordinary time” as a result of two years of the coronavirus pandemic followed by the war in Ukraine.

Opposition politicians have claimed that real inflation is even higher than official figures. Ali Babacan, a former economy minister who now leads an opposition party, described price hikes as “out of control”.

Veli Agbaba, an MP for the opposition Republican People’s Party, said the country was moving “step by step toward hyperinflation” — often defined as annual inflation of more than 50 percent for several consecutive months.

Line chart of percentage change in consumer prices year-on-year, showing that Turkey's inflation rate has skyrocketed

Analysts at Goldman Sachs said they expected the pace of price increases to surpass 65 percent and “stay above that rate for most of 2022,” before decelerating to about 45 percent in December.

Even before the Russian invasion of Ukraine was caused commodity prices riseTurkey has been struggling with the highest inflation since Erdogan’s party came to power nearly two decades ago.

The central bank cut interest rates by a total of 5 percentage points in the final months of last year as Erdogan, a self-proclaimed “enemy” of high interest rates, ordered policymakers to prioritize economic growth despite mounting price pressures.

Polls suggest so The rising cost of living has found support for the Turkish leader who built much of his early electoral success on bringing economic prosperity to millions. But Erdogan, who rejects the mainstream economic orthodoxy that high interest rates help cool inflation, has refused to allow the country’s central bank to raise borrowing costs.

With the central bank’s interest rate set at 14 percent, real interest rates are minus 47 percent when factoring in March’s inflation rate. The strongly negative real interest rate threatens to rise further pressure on the lirawhich has been the worst-performing emerging market currency so far this year after the Russian ruble, declining about 9 percent of its value against the dollar.

MUFG Bank warned that the latest inflation data would “further erode” confidence in the Turkish currency, adding that monetary policy stances are “far too loose to fight inflation risks”.

Speaking at an event in the northwestern city of Bursa, Nebati said supply chain problems in agriculture and energy in particular have created inflationary pressures.

He insisted Ankara was taking steps to bring inflation down “permanently”, pointing to the controversial state-backed scheme which aims to lure savers back to the lira by promising to shield them from exchange rate risks. The government has also announced several rounds of sales tax cuts and a 50 percent increase in the minimum wage to limit the pain for households.

Analysts warn that the war in Ukraine could also hit Turkey’s tourism sector, which relies on both Ukrainian and Russian visitors and serves as a major source of foreign exchange for the country’s economy. Turkey’s inflation hits a 20-year high at 61% as energy and food costs soar

Adam Bradshaw

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