In Turkey, the rapid rise in inflation has continued in the new year. In January, the inflation rate jumped to just below the 50 percent mark. Year-on-year, consumer prices rose by 48.7 percent, the National Statistics Office said Thursday in Ankara. Analysts had expected the renewed jump in prices after a massive drop in the Turkish lira last year and a sharp rise in key commodity prices.
A year ago, the inflation rate in Turkey had stood at 15 percent. At the end of 2021, inflation began to soar, with rates of 21 percent in November and 36 percent in December. Prices in Turkey are also rising sharply on a month-on-month basis. In this view, the statistics office reported an 11.1 percent increase for January.
Figures come just days after Erdogan sacks head of statistics agency
The new figures were released just days after Turkish leader Recep Tayyip Erdogan dismissed the head of the National Statistics Authority. Erdogan, an avowed opponent of high interest rates, had replaced the previous head of the authority, Sait Erdal Dincer, with the former deputy head of Turkey’s banking regulator, Erhan Cetinkaya, on Saturday amid debate over the rapid rise in the inflation rate.
Erdogan gave no reason for the dismissal of Dincer. However, the latter had come under criticism in early January after publishing the inflation rate for December. According to media reports, Erdogan accused Dincer of exaggerating the extent of the economic crisis in Turkey. The opposition, meanwhile, doubted the official inflation figures and speculated that the actual increase in the cost of living was actually at least twice as high.
Inflation is a consequence of the weak lira – and now a political issue
The high inflation is mainly a consequence of the weak lira, as it makes imports more expensive. After a dramatic drop in 2021, the Turkish government has now succeeded in stabilizing the national currency by covering losses from currency fluctuations under certain conditions.
The extent of the impact of the price increase of imported goods in Turkey is shown, among other things, by the development of producer prices. Prices charged by producers for their goods increased by 93.5 percent year-on-year in January. Producer prices are likely to pass through to consumer prices, at least in part, with a lag. The main reason for the sharp rise in consumer prices is considered to be the loose stance of Turkish monetary policy. Despite high inflation, the Turkish central bank has cut the key interest rate several times in the past year, most recently to 14.0 percent.
Inflation has now also become one of the most important issues in Turkish politics. President Erdogan is pursuing a strategy that contradicts standard economist doctrine, as he strictly rejects any increase in the key interest rate to curb inflation. Erdogan, on the other hand, wants to use low interest rates to stimulate loans and investments – but this will further increase the amount of money in circulation.
Finance Minister: Peak of price increase expected in April
In an interview with the Japanese business newspaper “Nikkei” published on Thursday, Turkish Finance Minister Nureddin Nebati said that he expects the peak of the price increase in April. According to his assessment, the inflation rate is unlikely to rise above the 50 percent mark in the process.
Analyst Tatha Ghose from Commerzbank, however, referred to the recent change at the top of the Turkish Statistical Office. He said there is now concern in the market that the personnel change could have consequences for the reliability of future economic data from Turkey. “This cocktail of less-than-credible monetary policy, the central bank’s waffling and the government’s meddling is an old acquaintance and is very likely to trigger the next lira crisis sooner or later,” Ghose warned.