Turkish inflation surges to highest since 2003
Turkey’s inflation rate surged to 15.4 percent in June, the highest level since 2003, raising the prospect of further rate hikes by the country's central bank.
The consumer price inflation rate jumped from 12.2 percent in May, the Turkish Statistical Institute said on Tuesday. The increase in annual inflation was led by transportation costs, food and non-alcoholic beverages and household furniture and appliances. Annual producer price inflation accelerated to 23.7 percent from 20.2 percent in May, also the highest level in a decade and a half.
“Dreadful data – as bad as it comes,” said Tim Ash, senior emerging markets strategist at Blue Bay Asset Management in London. “I guess the price is being paid for the central bank being behind the curve for too long. Now they have to work that much harder to prove their inflation-fighting credentials.”
Turkey’s central bank raised interest rates by 425 basis points to 17.75 percent in May and June to stem the lira’s decline to a record low of 4.92 per dollar reached in the second half of May. The bank had delayed increases in interest rates as President Recep Tayyip Erdogan claimed higher rates were inflationary and called on the bank to support economic growth.
The lira fell 0.7 percent to 4.65 per dollar at 10:24 a.m. in Istanbul.
Erdogan’s government had pledged to tackle increases in inflation prior to winning presidential and parliamentary elections on June 24. Economists have called on Turkey to pare back spending, which it has used to stimulate economic growth. Turkey’s growth rate, which reached 7.4 percent annually in the first quarter, has raised concern about a hard landing for the economy.
Consumer price inflation climbed 2.6 percent month-on-month in June, exceeding annual increases in many developed economies. Turkey’s annual inflation rate is about four times the average in emerging markets.
The government said late last year that measures to rein in food prices would help to bring inflation down, predicting the rate of price increases would drop into single digits. The central bank’s target for inflation is 5 percent, a goal now seen as unrealistic by most economists and investors.