ISTANBUL: Turkey’s inflation hit a two-decade high near a whopping 50 percent in January, official data showed yesterday, as a currency crisis decimated people’s purchasing power and complicated President Recep Tayyip Erdogan’s path to re-election. The stronger-than-expected 48.7 percent rate followed a year-on-year rise of 36.1 percent in December, according to Turkey’s statistics agency, although some independent estimates put the real figure substantially higher.
The reading came out just days after Erdogan changed the head of the state statistics agency for the fourth time since 2019. Turkish media reported that Erdogan was unhappy with agency data showing inflation reaching the highest level since his Islamic-rooted party stormed to power two decades ago, complicating his path to re-election in 2023. Independent data collected by Turkish economists suggest that the annual rate of inflation rose to more than 110 percent in January. Although inflation is rising across the world, thanks in part to cheap money policies adopted to cushion the blow of the coronavirus pandemic, Turkey’s problems are dramatically more acute because of Erdogan’s unorthodox economic approach.
Erdogan rejects the idea that inflation should be fought by hiking the main interest rate, which he believes causes prices to grow even higher-the exact opposition of conventional economic thinking. He admitted on Monday that Turks would “have to carry the burden” of inflation for “some time”. “God willing we have entered a period where each month is better than the previous one,” he added. Turkey has suffered from persistently high inflation for years, experiencing two currency crises since 2018. The second last year came after Erdogan orchestrated sharp interest rate cuts that put them far below the rate at which prices were rising, eroding Turks’ purchasing power and savings.
This prompted Turks to stock up on gold and foreign currency, resulting in a crash that saw the lira lose 44 percent of its value against the dollar in 2021, with most of the losses coming in the last two months of the year. Turkish Finance Minister Nureddin Nebati told Nikkei Asia in an interview published yesterday that inflation would peak in April before falling to the single digits by the June 2023 general election.
The central bank last month also revised up its forecast for inflation at the end of 2022 to 23.2 percent from 11.8 percent, although most economists dismiss the reading as overly optimistic. “We expect inflation to hover at 45-50 percent throughout much of this year and, barring another collapse in the lira, it will only drop back in the final months of 2022,” said analyst Jason Tuvey of Capital Economics. Thursday’s breakdown showed the price of food and non-alcoholic beverages rising by 55.6 percent, meaning that inflation is hitting the poorest the hardest. Erdogan had championed the poor when first rising to power. But his public approval numbers are near the low end of his 20-year rule, raising the hopes of Turkey’s traditionally secular main opposition party.
The government hopes inflation will fall after pressures-including a minimum wage hike in January and rising energy bills-subside and new currency support measures kick in. The central bank paused a four-month streak of interest rate cuts in January, providing relief for the lira, which has held largely steady this year. But at the weekend, Erdogan once again refused to accept conventional thinking that says high borrowing costs help bring down consumer prices by limiting demand and slowing economic activity. “You know my fight against interest rates,” he said. “We’re going to bring down the rate and we are reducing the rate. Know that inflation will fall-it will fall further.” — AFP