Turkey’s consumer price inflation rate jumped to an annual 48.7 percent in January, the highest level since April 2002, after lax monetary policy helped cause a slump in the lira, pushing up living costs.
CPI climbed from 36.1 percent in December, the Turkish Statistics Institute said on Thursday, Prices rose by 11.1 percent month-on-month.
Prices in Turkey are surging after the central bank, acting on the orders of President Recep Tayyip Erdoğan, cut interest rates between September and December to spur economic growth, and global energy prices spiked. The rate cuts sparked an exodus of capital from the lira, which lost 44 percent of its value against the dollar last year.
“We expect inflation to hover at 45-50 percent throughout much of this year and, barring another collapse in the lira, it will only drop back in the final months of 2022,” Jason Tuvey, senior emerging markets economist at Capital Economics in London, said in an e-mailed report.
Turkey’s inflation rate is the highest in major emerging market countries after crisis-hit Argentina, where price increases stand at an annual 50.9 percent. Argentina signed a $50 billion rescue deal with the International Monetary Fund in 2018. Erdoğan has ruled out IMF money and says Turkey’s economy is strong.
Despite Turkey’s galloping inflation, the next move in interest rates is likely to be down rather than up, as the government pursues a “new economic model” of low interest rates and a weak lira, Tuvey said.
Annual inflation was expected to accelerate to 46.7 percent, according to the median estimate in a Reuters poll of 17 economists. Forecasts ranged between 40 percent and 52.2 percent.
Transport prices rose by 68.9 percent and the price of food and non-alcoholic drinks by 55.6 percent, the institute said.
Annual producer price inflation jumped to 93.5 percent from 79.9 percent in December. Prices gained by a monthly 10.5 percent.
The lira was trading down 0.9 percent at 13.59 per dollar as of 11:22 a.m. local time in Istanbul.
To help stem the lira’s losses, the central bank has intervened heavily in the currency markets and Erdoğan announced a scheme in late December linking some Turkish lira bank deposits to the dollar. The lira has dropped by 2 percent against the dollar so far this year.
(This story was updated with comments from economist in the fourth and sixth paragraphs.)