The annual inflation rate in Turkey soared to a 20-year high of 54.4% in February, following a 48.69% increase in January, figures from the Turkish Statistical Institute (TUIK) showed on Thursday (March 3). Economists had expected 52.95% inflation.
Transportation prices recorded the biggest increase (75.75%), while food and non-alcoholic beverages prices jumped (64.47%), followed by miscellaneous goods and services (55.78%), hotels, cafes and restaurants (55.20%), and housing, water, electricity, gas and other fuels (49.72%).
On a monthly basis, consumer prices rose 4.81%, compared to a Reuters poll forecast of 3.8% and an annual forecast of 53%.
The producer price index jumped 7.22% in February, clocking an annual increase of 105.01%.
Among the main industrial sectors, prices for the energy industry grew 188.47% yearly while those for intermediate goods gained 115.13%. Prices for non-durable consumer goods and capital goods rose 70.0% and 71.9%, respectively. Prices for durable consumer goods climbed 69.2%.
The data weighed on the lira, which traded 0.8% lower on Thursday to about TL14 against the US dollar. The Turkish currency has lost roughly 60% of its value since 2021.
Turkey’s President Recep Tayyip Erdogan is an advocate of low-interest rates.
At the end of last year he ordered the central bank to aggressively cut borrowing costs insisting that the move will lift the burden on investments despite soaring inflation.
Erdogan who prioritizes exports over currency stability, is betting that the weaker currency will boost exports and fuel economic growth ahead of planned elections scheduled for no later than mid-2023.
Since September last year, the Central Bank of Turkey cut the rates by 500bps. It left the key one-week repo rate steady at 14% during its February meeting citing rising geopolitical risks and arguing again that the recent surge in prices is not supported by economic fundamentals. The central bank is due to hold its next rate-setting meeting on March 17.
Economists predict that the country is likely to live with high inflation throughout 2022.
“The spillover effects from the Russia-Ukraine crisis, including higher global commodity prices and potentially fresh supply chain disruptions, mean that the risks are skewed to the upside,” Jason Tuvey, senior emerging markets economist at Capital Economics, wrote in a research note.
“Inflation will stay close to these high levels until the very final months of this year, but the central bank and, crucially, President Erdogan seem to have no appetite for interest rate hikes,” Tuvey added.
The accelerating surge in prices and drop in the lira have upended household and company budgets.