Turkey’s inflation has soared to a new record, official data showed Monday, as analysts see an impact from Russia’s invasion of Ukraine and President Recep Tayyip Erdogan’s unorthodox interest rate policy.
Exacerbating a cost of living crisis, consumer prices accelerated to 61.14 per cent at an annual rate, up from 54.4 per cent in February, according to the statistics agency.
The weakening lira and runaway inflation have become major sources of public discontent in Turkey as President Recep Tayyip Erdogan faces an election next year.
Turkey has recorded double digit inflation since early 2017 but the latest figure is the highest since the ruling Justice and Development Party (AKP) came to power in 2002.
The currency was stable following the latest inflation data, trading at 14.7 lira against the dollar and 16.2 lira against euro.
The war in Turkey’s Black Sea neighbourhood has had a major impact on the country as Russia is a key supplier of energy while Ukraine ships wheat. Turkish tourism industry also mainly relies on Russian tourists.
On Friday, S&P global rating agency kept a negative outlook on Turkey and cut its credit rating.
“The fallout of the Russia-Ukraine military conflict, including rising food and energy prices, will further weaken Turkey’s already tenuous balance of payments and exacerbate inflation,” it said.
The biggest price increases in March were in transportation and food prices, according to the statistics agency.
While countries around the world are facing rising inflation as energy prices have soared while economies emerge Covid restrictions, Turkey’s problems have also been affected by Erdogan’s unorthodox economic approach.
The Turkish leader 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 opposite of conventional economic thinking.
Turkish central bank “policies are just not working in countering inflation,” said Timothy Ash, emerging markets strategist at BlueBay Asset Management.
“Indeed, I think the overwhelming consensus is that the unorthodox policy settings of the CBRT (central bank) are a major cause of inflation,” he said in a note to clients.
“The war in Ukraine is just making things that much worse.”
On Saturday, Erdogan said the increase in food and energy prices triggered by the war in Ukraine “is affecting us too.”
“We are fighting against those who are charging unreasonably high prices,” he said.
“There are problems we need to address … I ask you to be patient and trust us,” in reference to people squeezed by the biting inflation.
In January, Erdogan changed the head of the state statistics agency.
Turkish media reported that he was unhappy with the inflation figures it published while the opposition believes that the official figures grossly underestimate the reality.
Jason Tuvey, senior emerging markets economist at the London-based Capital Economics, said inflation was likely to rise further over the coming months and stay close to the current high rates for much of this year.
“But there is still little sign that the central bank and, crucially, President Erdogan are about to shift tack and hike interest rates,” he said.