An exchanger holds banknotes in Turkish lira and US dollars at an exchange office in Ankara, Turkey, December 16, 2021.
Chagla Gurdogan | Reuters
Inflation in Turkey has risen to a new 20-year high, higher than expected by 54.44% in February as the pound continues to suffer and energy prices rise.
Consumer prices rose 4.81% from the previous month, according to the Turkish Statistical Institute on Thursday. The producer price index jumped 7.22% from the previous month, an annual increase of 105%.
Record energy imports in January helped increase Turkey’s trade deficit, and commodity prices continue to rise amid fears about supplies and the Russian invasion of Ukraine. Brent oil has risen 53 percent since the beginning of the year.
Turkish President Recep Tayyip Erdogan has given priority to credit and exports, while consistently arguing – against any economic orthodoxy – that rising interest rates are actually exacerbating inflation, not taming it.
The Central Bank of Turkey cut interest rates by 500 basis points from September to 14%.
The Turkish lira has lost approximately 47% of its value in the last full year as a result of Erdogan’s refusal to raise interest rates as inflation continues to rise. The turbulence of the currency hit the Turks hard as their wages fell and living costs rose sharply. Sharp increases in electricity and gas tariffs have complicated the pain for consumers and businesses.
January inflation in the country is 48.7%, the highest in two decades. In mid-February, Erdogan vowed to “break the shackles of interest rates” and reduce inflation to single digits. He blamed Turkey’s currency problems on “foreign financial instruments”.
Erdogan’s government has instead promoted “permanent lyricization” and a “rescue plan” that will guarantee the Turkish central bank’s savings in pounds by intervening and compensating for losses on pounds in pounds if their value against hard currencies falls above interest rates banks.
Analysts say the plan is expensive and essentially represents a large hidden interest rate hike and is unlikely to be sustainable in the long run.
“Inflation will remain close to these highs until the last months of this year, but the central bank and, most importantly, President Erdogan do not seem to have an appetite to raise interest rates,” London-based Capital Economics said in a note Thursday.
The dollar rose just under 1% against the pound on Thursday morning in Istanbul, with the Turkish currency trading at 14.13 for the greenback.