Official inflation in Turkey has reached the highest level since Recep Tayyip Erdogan’s ruling party came to power almost two decades ago, as global inflationary pressures combined with the president’s unorthodox economic management fuel a surge in prices.
The country’s consumer price index rose 48.7 per cent year on year in January, the Turkish Statistical Institute said, up from 36 per cent in December.
The figure, announced just days after Erdogan sacked the statistics agency’s head, was in line with the expectation of economists, according to a survey by Bloomberg — although opposition parties and some economists claimed it was far lower than the country’s true inflation rate.
The reading was driven by sharp rises in the cost of food, electricity and gas, and represents the highest official rate that Turkey has experienced since April 2002.
Erdogan, who was widely credited during his first decade in power with ushering in economic prosperity, has presided over repeated bouts of high inflation in recent years as he has consolidated his powers and meddled in monetary policy.
The Turkish president, an ideological opponent of high interest rates, ordered the central bank to cut borrowing costs four times in a row last year, bringing the policy rate to 14 per cent despite warnings that it would exacerbate the country’s already high inflation.
Erdogan has long argued, contrary to established economic orthodoxy, that lowering rates helps to stabilise prices. But economists say that the plunge in the lira that often accompanies the rate cuts quickly feeds through into rising prices in a country that is heavily reliant on imported energy and goods. The Turkish currency lost 44 per cent of its value against the dollar in 2021.
Turkey’s recent rate-cutting drive also puts it at odds with global central banks that are tightening policy in a bid to cool the highest rate of inflation in decades.
Polls suggest that support for Erdogan’s AKP is close to historic lows amid public discontent about the soaring cost of living.
Still, Turkey’s finance minister, Nureddin Nebati, said prior to Thursday’s announcement that there would be “no turning back” from the policy of having interest rates that are far below inflation. “We have no rate hike in our agenda,” he told Nikkei Asia.
Nebati said that he expected inflation to peak at a level below 50 per cent in April.
Goldman Sachs, the US investment bank, predicted that inflation would rise to around 56 per cent in May and remain close to that level for much of the year. “With real rates deeply in the negative territory, we also think that the policy stance adds to the inflationary risks,” it said.