Turkey’s Inflation Nears 25% Amid Concerns Over Monetary Policy

Turkey’s inflation rate rose to nearly 25 percent in September, official statistics showed Wednesday, as the economy suffers further from the Turkish lira’s dramatic fall.

The unexpectedly bad figures come amid continued concerns over domestic monetary policy and the government’s steering of the economy as well as a bitter spat with the U.S. which saw the lira fall by 25 percent against the U.S. dollar in August.

Consumer prices rose 24.52 percent in September from the same month last year, up from a 17.9 percent increase recorded in August, according to the Turkish statistics office (TUIK).

The figure is the highest since August 2003, the year President Recep Tayyip Erdogan became premier a role he held until 2014 before becoming head of state.

The new inflation rate is also significantly higher than the Bloomberg consensus forecast of 21.1 percent.

Finance Minister Berat Albayrak admitted the figures were higher than expected but insisted: “We have left the worst behind us.”

Albayrak told NTV broadcaster the government would outline measures to combat inflation next week, adding he believed “the trend in inflation will break in October.”

But Inan Demir, an economist at Nomura, believes it is “still too early to say that the worst is behind us as pent-up inflationary pressures have built up in categories ranging from fuel to bread”.

Hard Hit by US Row

The lira was hit hard by a diplomatic row between NATO allies Washington and Ankara over Turkey’s detention of an American pastor for two years on terror-related charges.

The row deepened after Washington imposed sanctions on two Turkish ministers and doubled steel and aluminum tariffs in August.

The Turkish lira weakened to 6.06 against the U.S. dollar, a loss of 1.5 percent on the day, after the data were released but rallied slightly to 6.04 after 1300 GMT Wednesday.

The currency has lost 37 percent of its value against the greenback since the beginning of the year.

There was a brief reprieve for the lira last month when the central bank increased its main policy rate — the one-week repo auction rate — from 17.75 percent to 24 percent.

However, Erdogan has previously said high rates cause high inflation and once described interest rates as “the mother and father of all evil”.

Economists said the larger-than-expected inflation rise would put further pressure on the central bank to raise rates again at the next MPC meeting on October 25.

But Jason Tuvey, senior emerging markets economist at London-based Capital Economics, said “given the scale of last month’s rate hike and continued bellicose comments from President Erdogan, we suspect that policy will be left unchanged.”

Albayrak said in September that Ankara expected inflation to be 20.8 percent at the end of 2018, moderating to 15.9 percent in 2019.

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