Turkey inflation accelerates to 14.6 percent in challenge for central bank

Turkey’s consumer price inflation rate rose to 14.6 percent in December, exceeding economists’ estimates as it climbed for the third-straight month.

Accelerating price increases may keep pressure on the central bank to extend a series of interest rate hikes even after it more than doubled borrowing costs since September. Most Turks believe inflation is higher than the official tally, a poll showed on Monday.

Inflation gained from 14 percent in November, led by an increase in the price of food, transportation and miscellaneous goods and services, which all rose by more than 20 percent annually, the Turkish Statistical Institute said on its website. Clothing and footwear were the only items to register a decrease.

Annual price rises, the highest since August 2019, were forecast at 14.2 percent, according to the median estimate in a Reuters poll of 14 economists last week. The predictions had ranged from 13.7 percent to 15.3 percent.

Turkey’s central bank has hiked its benchmark interest rate to 17 percent from 8.25 percent in September to rein in inflation and to defend the lira, which sunk to successive record lows during 2020. It next meets on interest rates on Jan. 21. Many Turks have sold liras for foreign currency to protect their savings from the erosive effects of inflation.

Central bank governor Naci Ağbal, appointed by President Recep Tayyip Erdoğan on Nov. 7, has vowed to keep borrowing costs high in 2021 to slow inflation to 5 percent in the medium term.

"This just affirms the challenge still facing Ağbal and the disastrous situation left by his predecessors," said Tim Ash, senior emerging markets strategist at BlueBay Asset Management in London.

Annual producer price inflation accelerated to 25.2 percent last month, the highest level since May 2019, from 23.1 percent in November. Manufacturing price increases stood at an annual 27.3 percent.

The lira traded up 0.4 percent at 7.4 per dollar after the data was released, paring earlier gains. The currency hit a record low of 8.58 per dollar in early November.

Fifty-one percent of the population say annual inflation exceeds 30 percent, according to a December survey of the electorate published on Monday by research company Metropoll.

Just 11.9 percent of respondents said inflation was in line with official data, with a further 16.5 percent saying inflation totalled between 20 percent and 30 percent, Metropoll said.  

Consumer price inflation was 36.7 percent in December, according to ENAGrup (ENAG), an independent institution set up by Turkish academics last year to track the country’s inflation rate. 

"Inflation will likely peak in April while the exchange rate outlook, tax adjustments and expectations will remain key drivers," Muhammet Mercan, chief economist for Dutch bank ING in Turkey, said in a report.

(This story was updated with economist's comment in the seventh paragraph.)