Inflation in Turkey has been fueled by the continued decline of the lira as well as the economic consequences of the Russian invasion of Ukraine.
Turkish inflation hit a new 24-year high of 79.6% in July, data showed on Wednesday, as continued lira weakness and global energy and commodity costs pushed prices up. on the upside, although price increases are lower than expected.
Inflation began to soar last autumn when the pound slumped after the central bank gradually cut its benchmark rate by 500 basis points to 14% in a cycle of easing sought by the President Recep Tayyip Erdogan.
Month-on-month consumer prices rose 2.37% in July, the Turkish Statistical Institute (TUIK) said, below forecasts from a survey by the news agency Reuters by 2.9%. Annually, consumer price inflation should be 80.5%.
Jason Tuvey, senior emerging markets economist at Capital Economics, said annual inflation could approach a peak, with energy inflation falling sharply and food inflation looking close to plateauing.
“Even though inflation is near a peak, it will remain near its current very high rates for several more months,” Tuvey said in a note.
“Sharp and disorderly falls in the pound remain a major risk,” he said.
The largest annual increase in consumer prices was recorded in the transportation sector, up 119.11%, while food and non-alcoholic beverage prices soared 94.65%.
This year’s inflation was further fueled by the economic impact of Russia’s invasion of Ukraine, as well as the continued decline of the lira. The currency weakened 44% against the US dollar last year and is down another 27% this year.
The lira was trading flat after the data at 17.9560 against the dollar. It hit a record low of 18.4 in December.
Annual inflation is now at its highest level since September 1998, when it hit 80.4% and Turkey was battling to end a decade of chronically high inflation.
Last week’s Reuters news poll showed annual inflation down to around 70% by the end of 2022, declining from current levels as base effects from soaring oil prices last year take effect.
The national producer price index climbed 5.17% month on month in July for an annual increase of 144.61%.
The government has said inflation will decline due to its economic program, which prioritizes low rates to boost production and exports and aims to achieve a current account surplus.
Erdogan said he expects inflation to fall back to “appropriate” levels by February-March next year, while the central bank raised its end-2022 forecast to 60.4 % last Thursday, compared to 42.8% previously.
The bank’s inflation report showed that the estimated range for inflation would hit nearly 90% this fall before falling.
Opposition lawmakers and economists questioned the reliability of TUIK’s figures, claims which TUIK rejected. Polls show that Turks think inflation is much higher than official data.