It is reported that, ‘Inflation in Türkiye spiked to 58.9% in annual terms in August, its fastest pace this year, from around 48% in July, according to data released on Monday by the Turkish Statistical Institute.
The month-on-month increase was 9.1%, mostly driven by rising energy and food costs. Transport costs jumped 16.6% month-on-month, while food and non-alcoholic beverage prices rose by 8.5% from July and 72.9% from last year. The core index, which excludes volatile food and energy prices and is seen as a bellwether for future inflation developments, posted an annual gain of 64.9%.
Analysts attribute the spike in inflation to the steep fall in the lira exchange rate and recent tax increases. The Turkish currency has lost about 30% of its value so far this year.
After years of interest rate cuts, which helped trigger a currency crisis in late 2021 and sent inflation to a 24-year peak of 85.51% last October, the Turkish central bank turned back toward more traditional economic policies earlier this year. It has so far hiked the key rate three times to the current 25%, although experts say that more tightening is in order, despite the slight gains in the lira since the latest rate increase in August.
“The recent lira appreciation is unlikely to trigger price discounts, in our view, but it may contribute to a slower pace of price gains through the rest of the year. We maintain our call for a year-end inflation rate of 57%, but recognize risks have emerged on both sides,” economist Selva Bahar Baziki told Bloomberg, commenting on the situation.
Turkish Finance Minister Mehmet Simsek has warned that the battle against inflation may be a long one.
“We are absolutely determined to fight inflation. We know that the fight against inflation will take some time. We are in the transition period. We will do whatever is necessary – monetary tightening, credit policy and income policies – to bring inflation under control and then lower it,” Simsek wrote on his X (formerly Twitter) account after the data release.’
In August, ‘The Turkish central bank raised its benchmark interest rate by 7.5 percentage points on Thursday to 25%, in a bid to curb spiraling inflation.
The hike was significantly higher than the increase to 20% that many economists had expected.
The regulator opted for a major increase in a sign of a turn to more “rational” economic policies after years of rate-cutting, which has been blamed for fuelling inflation and the cost-of-living crisis in Türkiye.
Thursday’s hike is further evidence that policymakers in Ankara are following through on their pledge to return to a more conventional approach to monetary policy. The lira rallied strongly in the wake of the move.
The governor of the Turkish central bank, Hafize Gaye Erkan, who was appointed in June, has nearly tripled benchmark interest rates from 8.5% since being appointed.
The regulator does not rule out further tightening in the coming months until the inflation situation in Türkiye improves. Price growth jumped from 38% in June to almost 48% in July.
The surging inflation has driven the central bank to sharply revise upwards its year-end inflation forecast from 22.3% to 58%.’