Turkey’s official inflation rate exceeded 80 per cent for the first time since 1998 in August as policymakers insisted that runaway price increases would soon begin to slow.
The consumer price index increased at an annual rate of 80.2 per cent last month, according to data published by the government statistics agency — the highest level since President Recep Tayyip Erdoğan took power almost two decades ago. The figure was up from a rate of 79.6 per cent in July.
Turkey has pursued what some economists have termed a giant economic experiment as the Turkish president, a notorious opponent of high interest rates, has insisted on maintaining one of the world’s lowest interest rates in real terms and inflation has soared as a result. With the central bank’s benchmark rate now at 13 per cent after an unexpected rate cut last month, the real cost of borrowing now stands at minus 67 per cent.
Government officials, who argue that they are pursuing a new economic model, have insisted that inflation will begin falling in the final months of 2022 even as they raised their year-end forecast to 65 per cent over the weekend.
“In the months ahead, we will witness inflation losing speed even more,” Nureddin Nebati, the country’s finance minister, wrote on Twitter in response to Monday’s data. He said the latest figures supported his view, adding: “We will drive high inflation out of these lands, never to return again.”
Turkish officials are hoping that cooling inflation will help Erdoğan’s campaign for re-election in polls that are scheduled for June next year. Soaring inflation and a plunge in the value of the lira have eroded living standards and fuelled dissatisfaction with the president’s leadership.
Most analysts agree that inflation will start to fall next year as the impact of the soaring rate of increase in early 2022 falls out of the index.
But many have warned it still has further to rise before it begins to decline — and could end up stuck at a much higher level than the single-digit rate of 9.9 per cent that officials say they are ultimately targeting in 2025.
Liam Peach, a senior emerging markets economist at the London-based consultancy Capital Economics, said he expected inflation to peak at 85 per cent before falling sharply in early 2023.
Peach warned that price rises would remain “entrenched at high levels for some time” because of Erdoğan’s deeply unorthodox economic policy.
“The central bank is likely to remain beholden to President Erdoğan’s wishes for looser policy, and it seems that further interest rate cuts are more likely than not later this year,” he said.
Monday’s inflation data was slightly below the consensus expectation among analysts of 81 per cent. Opposition parties and some analysts, however, have cast doubt on the official figures, accusing the government of publishing artificially low numbers.
Inflation data published by the Turkish Statistical Institute, a state-run agency, has diverged strongly in recent months from a cost of living index produced by the Istanbul Chamber of Commerce, which increased almost 100 per cent year on year in August. The two indices had previously tracked each other closely.