Jan 01 2018

Turkey world inflation champion in 2017

Inflation in Turkey was the highest in the world last year, spurred on by domestic politics, resultant losses for the lira and the country’s reliance on imported goods, data showed.

The inflation rate in Turkey rose to 13 percent in November. That compared with rates of 4.4 percent in South Africa, 2.6 percent in the Czech Republic and 2.7 percent in Russia and Poland, the country’s main regional emerging-market competitors. The data excludes Venezuela, which has exited the global reporting system.

The lira has lost ground not only against the dollar and euro, but against the currencies of all of Turkey’s major trading partners, making imports more expensive:

Euro: -23.4%

Sterling: -18.5%

South Korean won: -17.8%

Russian ruble: -15.8%

Japanese yen: -13.3%

Chinese yuan: -10%

U.S. dollar: -7.6%

Indian rupee: -7.1%

Iranian rial: -3%

Despite a decline in the price of natural gas, Turkey’s gas import agreements with Iran and Russia are tied to the price of petrol, meaning that the country has paid more for the commodity in 2017. The total cost of importing gas and petrol rose 36 percent to $29.8 billion in the first 10 months of last year compared with the same period of 2016.

At the same time, the quality by which the country finances its widening current account deficit has deteriorated. Turkey is increasingly reliant on so-called “hot money” in the form of portfolio inflows and currency inflows that can’t be identified, data shows. Meanwhile, foreign direct investment, totaling $8.3 billion in the first 10 months of 2017, is at the lowest levels since the financial crisis. So much so that 69 percent of the capital used to finance the current account deficit in 2017 came from portfolio inflows.

To read the article in Turkish