Turkey’s consumer inflation last month climbed to one of the highest levels since Turkish President Recep Tayyip Erdogan came to power 15 years ago, spurring calls for higher interest rates to rein in prices.
The inflation rate rose for a sixth month to 24.5 percent from a year earlier, above all expectations in a Bloomberg survey where the median estimate was 21.1 percent.
The monthly rate was 6.3 percent, driven by an across-the-board spike provoked by the lira’s meltdown.
Turkish Minister of Finance and Treasury Berat Albayrak blamed hoarders and speculators, and predicted inflation would stop quickening next month.
Yesterday’s inflation report puts monetary policymakers in a bind. The central bank raised borrowing costs last month to their highest level in nearly two decades, yet prices are gaining at their fastest pace since June 2003.
Given Albayrak’s distaste for higher interest rates and an apparent slowdown in the economy, the bank has little room to act against further price surges.
However, with the lira losing as much as 40 percent of its value against the dollar since the beginning of the year, the worst may be yet to come.
“An inflation print so bad that it truly feels like old Turkey,” said Inan Demir, an economist at Nomura International in London. “But this is simply too bad to ignore. Note that annual headline inflation is now above the bank’s policy rate at 24 percent, which calls for another rate hike.”
The lira weakened as much as 1.6 percent after the data release.
The inflation rate is almost five times the central bank’s target of 5 percent and almost double its forecast for this year.
Speaking after the data release in a prearranged interview with NTV, Albayrak attributed much of the increase to hoarding and speculative pricing by businesses taking advantage of volatility.
Officials would start meeting tomorrow with representatives of various sectors of the economy for a new framework to curb prices that the government would likely announce next week, he said.
“The current trend will be broken in October,” Albayrak said.
Nigel Rendell, a London-based senior analyst at Medley Global Advisors, said the inflation figure was “a shocker,” but maintained some optimism that weak consumption might offset inflationary pressures at some point.
“Interest rates of 24 percent provide some protection, and there is a sense that the weakness of domestic demand will be the dominating disinflationary force in a few months’ time once the foreign exchange pass-through has fed its way through the system,” Rendell said.
What might worry policymakers is the pace at which consumer inflation is catching up with producers’ rising costs, BlueBay Asset Management LLC strategist Tim Ash said.
Producer prices last month rose by more 10 percent from August, bringing the annual increases to more than 46 percent.
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