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Turkish inflation reaches its highest level since 2002 | Business and Economy News
The annual consumer inflation rate hit 36.08% last month, and food and energy prices have skyrocketed.
ThroughBloomberg
Posted on January 3, 2022
Turkish inflation hit a 19-year high in December, propelled by a collapse in the pound, and President Recep Tayyip Erdogans is pushing for cheaper borrowing.
The annual consumer inflation rate reached 36.08% last month, the highest since September 2002 and up sharply from 21.31% in November. The figure far exceeded the median estimate of 27.36% in a Bloomberg survey of 19 analysts.
Turkey’s central bank has cut its benchmark interest rate by 500 basis points since September in a series of measures encouraged by Erdogan, who called high borrowing costs a challenge for businesses and a drag on economic growth . The cuts sent the lira down, fueling the rise in consumer prices.
The pound recovered some of its losses in December after Erdogan introduced a mechanism that promises to compensate pound holders when the currency weakens to a certain level. However, the currency remains around 31% weaker than it was on September 23, when the central bank started cutting interest rates.
Accelerating inflation brings Turkey’s inflation-adjusted benchmark interest rate to minus 22.08%, the lowest real yield among emerging markets.
The decision to cut the benchmark central bank rate by five percentage points caused the lira to drop about 44% last year, making it the worst major currency Bloomberg tracks. The currency also weakened after the December inflation report and was trading down 2.3% as of 10:30 am local time.
We expect headline inflation to accelerate through May-June, said Ozlem Bayraktar Goksen, Istanbul-based chief economist at Tacirler Yatirim. We do not see any change in the key rate in the first quarter in line with central bank guidance.
Below is more details from the data:
- Annual increases in food prices, which account for about a quarter of the market basket, reached 43.8% in December, well above the official central bank estimate of 23.4%.
- The energy inflation rate rose to 42.93% in December from 32.14% the previous month
- A core inflation index showed that prices excluding volatile items such as food and energy rose 31.88% per year from 17.62% in November, a sign of strong underlying inflationary pressures to the overall figure.
Although rising inflation hurt Erdogan’s popularity ahead of the 2023 election, he insisted he would pursue a policy change that he says is aimed at boosting manufacturing and exports and reduce the influence of international markets on Turkish monetary policy.
The central bank expects inflation to follow a volatile course, although it expects its easing of monetary policy to lead to a resumption of the downward trend in inflation once the temporary effects will be gone.
The bank has repeatedly said transient factors rather than lower interest rates were behind the latest price spike. Turkey’s monthly inflation will start to slow in January as the pound stabilizes and the government clamps down on unwarranted price hikes, Finance Minister Nureddin Nebati said in a TV interview on Wednesday.
The central bank will hold its next rate-setting meeting on January 20 and release its first inflation report of the year on January 27.
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Sources 2/ https://www.aljazeera.com/economy/2022/1/3/turkish-inflation-surges-to-highest-level-since-2002 The mention sources can contact us to remove/changing this article |
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