ISTANBUL (AFP) – Turkiye’s annual inflation climbed in July to 47.83 per cent, up sharply from 38.2 per cent, official data showed yesterday, a week after the central bank more than doubled its year-end forecast.
The new figure, in line with expectations, comes as Turkiye radically shifts its policies since the May election that includes an end to more than a two-year era of ultra-low interest rates.
Last week, the central bank revised its year-end inflation forecast to 58 per cent from 22.3 per cent after years of doubts from independent economists about the official rate.
The official rate had been steadily dropping since reaching a more than two-decade high of 85 per cent in October last year. The central bank and economists have forecast an upward trend from July.
The consumer prices skyrocketed by almost 9.5 per cent on a month-on-month basis, according to the TUIK state statics agency.
A separate study released by independent economists from the ENAG group who question the official data put the July figure at 122.88 per cent.
At her debut press conference last week, new central bank governor Hafize Gaye Erkan said inflation would increase “temporarily” due to the rising exchange rate of the lira as well as fiscal measures.
Under the former Goldman Sachs and First Republic Bank executive, the central bank twice hiked its interest rates from 8.5 per cent to 17.5 per cent even though that was not found ambitious enough by markets.
“It’s clear that interest rate hikes are just one part of the new policy shift under way in Turkiye at the moment and that monetary tightening further ahead will be gradual,” senior emerging markets economist at London-based Capital Economics Liam Peach, said in a policy note.
“We think a rise in the policy rate to 27.50 per cent or so by year-end is needed to sustain investor confidence,” he suggested.
Economists welcomed President Recep Tayyip Erdogan’s turn to more traditional economics even though he still believes that high interests rates contribute to – rather than cure – growing consumer prices. He began pushing the central bank to slash borrowing rates at all costs in 2021, setting off the worst inflationary spiral of his rule.
But Erdogan said after being re-elected he would allow his team economic team that includes Erkan and market friendly Mehmet Simsek as finance minister to take steps to fix the country’s troubles.
“The new team are impressive and can design a route out of crisis,” BlueBay Asset Management economist Timothy Ash said.
“We are seeing policy adjustment,” he said, adding that would eventually help the inflation.
Market analyst at Conotoxia fintech Bartosz Sawicki, however said given severe and deeply rooted internal and external imbalances, the post-election policy mix would likely fail to re-anchor inflation expectations and spur significant foreign capital inflows.
“Rising inflation combined with President Tayyip Erdogan’s impatience and disregard for orthodox policies will leave the lira vulnerable,” according to the economist.
