Home Ekonomi Turkey: 80% band and unprotected inflation anchor

Turkey: 80% band and unprotected inflation anchor

by ictihathaber

The data showed annual inflation accelerated for the 13th consecutive month to 78.6% in June, a slightly lesser rise than economists had predicted. Expected rates in the market were just below 80% on an annual basis and an inflation rate close to or slightly above 5% on a monthly basis. Price growth has hit double-digits almost continuously since the start of 2017, but this year it’s close to a quarter-century high due to rising energy and other commodity costs. While Turkey is exposed to one of the highest inflation rates in the world, the government’s macroprudential measures to keep prices under control do not help maintain the inflation anchor. According to IMF forecasts, Turkey will be closing this year with one of the highest inflation rates in the world, after Venezuela, Sudan and Zimbabwe.


If we look at the sub-items of inflation; The increase is broad-based and covers all components. While energy prices increased by 151.3% compared to the previous year, food inflation rose to 93.9%, further increasing the upward pressure. The core inflation index, which excludes the impact of volatile items such as food and energy, rose to 57.3% year-on-year from 56% in the previous month. Producer prices, an early indicator of inflation, have been growing by more than 100% for the fifth consecutive month, and increased by 138.3% year-on-year in June. Transport prices saw the highest annual increase in June, followed by food and non-alcoholic beverages, furniture and household goods. Data released by the ITO last week also showed that retail inflation in Istanbul rose to 94% year-on-year in June. The items that showed a higher increase than the headline inflation were transportation with 10.59%, housing with 8.34% and restaurants and hotels with 5.42%.


Inflation continues to rise, the annual CPI increase, which was 73.5% last month, reached 78.6% in June. The hikes in natural gas, electricity, energy, similarly the hikes in alcoholic beverages, fuel prices, and the price hikes in products such as sugar in the last days of June show that this effect will also increase July inflation, following June. If there are no additional factors in inflation, a peak can be seen in the autumn. If the increase in foreign exchange and the inflation trend in the world do not stop and the prices increase due to this, the risks to the current forecasts may also be on the upside. We think that the exchange rate and other price hikes will be decisive in this regard.


Believing that lower borrowing costs will help reduce inflation, President Mr. Recep Tayyip Erdoğan evaluated that faster price increases create a high cost of living burden on people and that there is a cost of living problem in Turkey. Mr. Erdogan said last week that inflation would slow to “reasonable” levels from February-March next year. Ahead of elections scheduled for next June, the government announced an interim increase in the minimum wage for the first time in six years, raising salaries by around 30%. In January, the minimum wage was increased to a record 50.5%. During Mr. Ağbal era, the central bank determined that for every 10% increase in the minimum wage, the headline prices increased by one percentage point.


If we look from the perspective of the central bank; The central bank, which predicted a little over two months ago that inflation could start to slow in June, did not raise policy rates after a series of monetary easing in late 2021 and responded only with measures to cool the consumer side. The lira continued to decline against the dollar in June, making imported goods more expensive, driving inflation, and recording the worst performance this year in emerging markets. The ground for fighting inflation, which is rising due to the increase in the exchange rate, is not created by monetary policy. While it is difficult to control inflation in an environment where monetary policy is not implemented, side macro precautionary measures are taken to stop the increase in foreign exchange. It is understood that these or similar measures taken or to be taken do not have a permanent effect on reducing the exchange rate in general.

Hibya Haber Ajansı

You may also like

Leave a Comment