ISTANBUL, Oct 3 (Portal) – Turkey’s annual inflation climbed to a fresh 24-year high of 83.45% in September, data showed on Monday, still lower than forecast after the central bank taunted markets with two Rate cuts over the past two months had surprised .
Despite rising prices, the central bank was set to cut interest rates again this month after President Tayyip Erdogan called for single-digit interest rates by the end of the year.
Inflation has risen sharply since November last year, when the lira collapsed after the central bank cut interest rates in an unorthodox easing cycle long sought by Erdogan.
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Month-on-month, consumer prices rose 3.08%, according to the Turkish Statistical Institute, less than a Portal poll forecast of 3.8%. Annual consumer price inflation was forecast at 84.63%.
This was the highest annual reading since July 1998 when it was 85.3% and Turkey was struggling to end a decade of chronically high inflation.
Inflation in September was driven by transportation prices, which rose nearly 118% year-on-year, while food and soft drink prices rose 93.05%.
Despite the inexorable rise in inflation, Erdogan said last week he had advised the central bank to cut its key interest rate at their forthcoming meetings, a day after saying he expected interest rates to fall to single digits by the end of the year.
JP Morgan said inflation is likely to remain in “unusually high territory until policy becomes orthodox,” adding that the easing cycle “will last until it can’t.”
“Monetary policy decisions have decoupled from macroeconomic fundamentals and become almost irrelevant to near-term inflation dynamics,” the statement said.
“RECESSIONAL FORCES”
Global recessionary forces, their impact on commodity prices and the pace of lira depreciation will be the main determinants of inflation, JP Morgan added.
Following the data, the lira was trading at 18.5620 against the dollar, weakening from Friday’s close of 18.5060. It stood at 18.5660 at 1302 GMT.
The currency has been less responsive to economic data and Erdogan’s comments than in the past, largely due to the central bank taking a more dominant role in the FX market since December.
Goldman Sachs now expects the central bank to cut interest rates by 100 basis points every month through the end of the year.
The bank cut its benchmark interest rate by 200 basis points to 12% in the last two months, bucking a global tightening cycle despite continued rises in inflation, rising energy prices and the lagged impact of the lira’s decline.
Last year’s interest rate cuts had sparked a currency crisis that has eroded the lira’s value against the dollar by 44% in 2021. This year it has weakened about 29% to new all-time lows.
Last week’s Portal poll showed annual inflation is expected to fall to 72% by the end of 2022.
The government has announced that inflation will come down with its economic program prioritizing low interest rates to boost output and exports with the goal of running a current account surplus.
The domestic producer price index rose 4.78% month-on-month in September, up 151.50% year-on-year.
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Reporting by Berna Suleymanoglu, Halilcan Soran in Gdansk and Marc Jones in London; writing from Daren Butler; Edited by Jonathan Spicer, Andrew Heavens and Josie Kao
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