Inflation in Turkey hits highest level in two decades at 48.7%

ISTANBUL, Feb 3 (Reuters) – Turkey’s annual inflation hit its highest level in 20 years by 48.69% January data was released on Thursday, fueled by pressure from President Tayyip Erdogan for unorthodox interest rate cuts and a resulting currency crash late last year.

Consumer prices jumped 11.1% from the previous month, the Turkish Statistical Institute (TUIK) said, taking a deep toll on incomes of Turks. Both measures were more than expected in a Reuters poll that predicted 9.8% per month and 46.7% per year.

The lira weakened 44% last year as the central bank cut interest rates by 500 basis points since September to 14%, under Erdogan’s push to prioritize credit and loans. exports.

Partly in response to the currency turmoil, the government has raised administered prices this year, including for gas, electricity, road tolls and bus fares, while the monthly minimum wage has been increased by 50%.

Transport-related prices soared 68.9% year-on-year, while food and drink prices jumped 55.6%, pushing inflation to its highest level in nearly two decades in power. ‘Erdogan.

The combination of inflation and currency depreciation has rattled the large emerging market economy, upended household and business budgets and deepened poverty ahead of elections scheduled for mid-2023.

Inflation is expected to top 50% this month and stabilize around 55% for most of 2022 before ending the year at 33%, Goldman Sachs said.

UNANSWERING CRY

The lira plunged 0.7% to 13.58 against the dollar at 10:32 GMT. It stabilized after wild swings – from 18.4 to 10.25 – in December, thanks in part to government interventions in the market and a deposit protection scheme. Read more

Turkey’s dollar-denominated sovereign bonds fell while spreads against US Treasuries (.JPMEGDTURR) widened to 559 basis points. The cost of insuring exposure through credit default swaps increased slightly.

“We have a policy rate of 14% and inflation of 48%…and a government that hedges the exchange rate differential. It’s a bad cocktail in the long run,” said Ipek Ozkardeskaya, senior analyst at Swissquote.

The read “can only retaliate because there is a serious gap between what should be done and what is being done. But for now, I am stunned to see the read as unresponsive to the news”.

The producer price index climbed 10.45% month on month in January for an annual rise of 93.53%, the data showed.

In an interview with Japan’s Nikkei, Finance Minister Nureddin Nebati predicted that inflation would remain below 50% and peak in April.

On Saturday, Erdogan replaced the boss of TUIK. Opposition parties and some economists have cast doubt on the agency’s figures, claims TUIK has dismissed. Polls show that Turks believe inflation is higher than official data suggests.

As expected, TUIK has adjusted its basket weighting for 2022, reducing that of housing, water, electricity, gas and other fuels to 14.12% from 15.36% last year. .

Additional reporting by Daren Butler and Karin Strohecker; Editing by Jonathan Spicer and Frank Jack Daniel

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