Main SliderMiddle East

Turkish inflation soars to 36%, highest in Erdogan era

ISTANBUL, Jan 3 (Reuters) – Turkey’s annual inflation rate surged to 36.1% last month, its highest in the 19 years that Tayyip Erdogan has ruled, laying bare the depths of a currency crisis engineered by the president’s unorthodox interest rate-cutting policies.

In December alone, consumer prices took a rare step into double-digits, rising 13.58%, Turkish Statistical Institute data showed on Monday, eating deeper into the earnings and savings of Turks rattled by the economic turmoil.

The year-over-year CPI outstripped a median Reuters poll forecast of 30.6% with staples such as transportation and food – which took increasing shares of households’ budgets during 2021 – rising even faster. read more

Turkey’s lira shed 44% of its value last year as the central bank slashed interest rates under a drive by Erdogan to prioritise credit and exports over currency and price stability.

On Monday the currency whipsawed down 5% then up 3%. It stood at 13.0790 versus the dollar at 1734 GMT, some 0.8% firmer than Friday’s close. read more

Some economists predict inflation could reach as high as 50% by spring unless the direction of monetary policy is reversed. Goldman Sachs said it would remain above 40% for most of the year ahead.

“Rates should be immediately and aggressively hiked because this is urgent,” said Ozlem Derici Sengul, founding partner at Spinn Consulting in Istanbul.

The central bank was however unlikely to act, she added, and annual inflation “will probably reach 40-50% by March”, by when administered price rises would have been added into the mix, including a 50% minimum wage hike. read more

Turkey now has the eighth-highest inflation in the world, according to a Trading Economics listing.

Last year was the worst for the lira in nearly two decades, while the annual CPI was the highest since the 37.0% reading of September of 2002, two months before Erdogan’s AK Party first took office. read more

Erdogan’s focus early on Monday was on trade data which showed exports surged by a third to $225 billion last year.

“We have only one concern: exports, exports and exports,” he said in a speech, adding the trade data showed a six-fold rise in exports during his tenure as leader.

Women shop at a local market in Fatih district in Istanbul, Turkey January 13, 2021. REUTERS/Murad Sezer
Women shop at a local market in Fatih district in Istanbul, Turkey January 13, 2021. REUTERS/Murad Sezer

Later, Erdogan said he was “saddened” that Turks had to face such high inflation levels, pledging to bring it down to single digits as soon as possible. read more

To support the currency and replenish its depleted reserves, the central bank said on Monday it had asked exporters to sell 25% of their hard-currency revenues to the bank for lira.


Erdogan overhauled the central bank’s leadership last year. The bank has slashed the policy rate to 14% from 19% since September, leaving Turkey with deeply negative real yields that have spooked savers and investors.

The subsequent accelerating surge in prices and drop in the lira have also upended household and company budgets, scuttled travel plans and left many Turks scrambling to cut costs. Many queued last month for subsidized bread in Istanbul, where the municipality says the cost of living is up 50% in a year.

“We don’t sit with our friends in a cafe and drink coffee any more,” Mehmet, 26, a university graduate, said. “We don’t go out, just from home to work and back again.”

The central bank has argued that temporary factors had been driving prices and forecast a volatile course for inflation, which – having been around 20% in recent months and mostly double-digits over the last five years – it said in October would end the year at 18.4%. read more

Sengul suggested that, with Monday’s data, that argument had run its course.

“This reflects a vicious cycle of demand-pull inflation, which is very dangerous because the central bank had implied the price pressure was from cost-push (supply constraints), and that it couldn’t do anything about it,” she said.

Reflecting soaring import prices, December’s producer price index rose 19.08% month-on-month and 79.89% year on year. Annual transportation prices soared 53.66% while the food and drinks basket jumped 43.8%, the CPI data showed.

Reuters Graphics
Reuters Graphics

The economic turmoil has also hit Erdogan’s opinion polls ahead of an election scheduled for no later than mid-2023. read more

The lira touched a record low of 18.4 against the dollar in December before rebounding sharply two weeks ago after state-backed market interventions, and after Erdogan announced a scheme to protect lira deposits against currency volatility.

Additional reporting by Mehmet Emin Caliskan and Ezgi Erkoyun in Istanbul, Ece Toksabay in Ankara; Editing by John Stonestreet, Hugh Lawson and Angus MacSwan

Related Articles

Back to top button