Turkey’s annual inflation rate jumped to 36.08% in December, up from 21.31% in the previous month and well above market expectations of 30.6%, destabilizing the wider economy, official data showed on Monday (Jan. 3).
It was the highest rate since September 2002, as the lira has been slumping to record lows following the central bank’s decision to slash interest rates amid soaring prices. While, most central banks raise interest rates to help cool inflation, Turkey, a country of some 84 million, has gone the other way.
The bank has slashed rates to 14% from 19% since September under pressure from President Tayyip Erdogan and has argued that temporary factors have been driving prices. The bank’s year-end inflation forecast was 18.4% in a report published in late October.
The weakened lira which lost 44% of its value against the dollar in 2021, has made imports, fuel and everyday items more expensive, has left many in the Middle Eastern country struggling to buy food and other basic goods.
The battered lira recovered some of its losses in December after Erdogan
unveiled a scheme in which the state protects converted local deposits from losses versus hard currencies. However, the currency remains about 31% weaker than it was on Sept. 23, when the central bank started slashing interest rates.
Inflation in Turkey has been mostly in double digits and well above emerging market peers for most of the last five years. Only seven countries posted higher rates of inflation in 2021, including Venezuela, Sudan, Lebanon and Syria.
Main upward pressure in December came from food and non-alcoholic beverages (43.80% t vs 27.11% in November), transportation (53.66% vs 22.74%), housing and utilities (28.57% vs 23.78%), furnishing and household equipment (40.95% vs 25.14%, hotels, cafes and restaurants (40.85% vs 28.90%), and clothing and footwear (20.13% vs 8.33%).
The annual core inflation rate rose to an all-time high of 31.88% in December. On a monthly basis, consumer prices surged 13.58%, the largest monthly increase on record.
Erdogan, a self-declared enemy of interest rates, defended his unorthodox economic policies on Monday, saying that trade data showed exports surged by a third to $225 billion last year. He didn’t mention the new inflation figures.
independent economic institutes such as the Inflation Research Group (ENAG) calculated last month’s annual inflation rate at 82.8%.
The central bank will hold its next rate-setting meeting on Jan. 20. and publish its first inflation report of the year on Jan. 27.
The economic turmoil has also hurt Erdogan’s approval ahead of an election due by mid-2023.