Turkey’s annual inflation rate soared to a 24-year high of 78.62% in June, marginally above forecast, according to data released on Monday. The rise comes as a result of the impact of the Ukraine war, skyrocketing commodity costs, and a decline in the value of the currency since December.
The Turkish lira has fallen and inflation has risen since Turkey’s central bank gradually lowered its policy rate to 14% last autumn, a 500-basis-point decrease aimed at boosting economic development.
The most recent data show that consumer prices climbed by 4.95% in June, which is lower than the 5.38% predicted by a Reuters poll. Consumer price inflation was expected to increase at an annual rate of 78.35%.
The cost of transportation climbed by 123.37% in June, while the price of food and non-alcoholic beverages increased by 93.93%, according to data from the Turkish Statistical Institute (TUIK).
June saw the highest annual inflation reading in Turkey since September 1998, when annual inflation reached 80.4%, and the country was trying to end a decade of protracted high inflation.
Following the statistics release, the lira’s rate remained at 16.78%. This year, the economic consequences of Russia’s invasion of Ukraine have further fueled inflation.
Turkish President Recep Tayyip Erdoğan stated last week that he anticipates inflation to reach “appropriate” levels by February or March next year. The central bank predicted that inflation would fall to 42.8% by the end of 2022 while maintaining the benchmark interest rate at 14%.
Turkey is “in a league of its own” among emerging markets (EM) when it comes to inflation, according to Witold Bahrke, a senior macro strategist at Nordea Asset Management in Denmark, because of what he claimed was its lack of a credible policy response.
“Inflation is a general issue for EM, and in Turkey, you end up with a toxic mix as we also have a policy issue,” Bahrke stated, adding that he anticipated the lira to continue to lose strength.
Economists and opposition members of Parliament have questioned the accuracy of the TUIK data, which TUIK has rejected. Turkish citizens, according to polls, believe that inflation is much higher than what the official numbers show.
The poll conducted last week predicted that by the end of 2022, inflation will be just around 70%. The lira has lost 21% of its value this year after falling 44% last year.
In June, the domestic producer price index increased 6.77% month over month, giving it a 138.31% annual increase.