Inflation in Turkey accelerates to 18.95%, forcing the bank to raise rates
Turkey’s consumer price inflation rate climbed to 18.95 percent last month, practically matching the central bank benchmark interest rate of 19 percent.
Inflation accelerated from 17.5% in June, the Turkish Statistical Institute announced on Tuesday. This was the highest level since April 2019. The CPI stood at 11.8% in July of last year.
Turkey’s central bank is under pressure from economists and investors to raise its benchmark interest rate, which it has held stable for the past four months even as inflation accelerates. Turkish President Recep Tayyip Erdoğan, who sacked the bank’s governor in March after raising rates, is a vocal opponent of higher borrowing costs, claiming they are inflationary, an opinion that contradicts conventional economic theory .
“Confidence in the Erdoğan administration is now so low that some conspiracy theorists will say the data is now being manipulated to keep inflation below the 19% level so that the central bank does not have to raise rates.” , Tim ash, senior emerging markets strategist at BlueBay Asset Management in London, said in comments sent via email. He pointed to recent changes in the management of the statistics institute as a driver of speculation.
The central bank pledged to keep interest rates above inflation to help slow annual price increases to a year-end forecast of 14.1%, which it raised from 12.2% last week. He declined to make it clear whether he was prepared to hike rates if necessary.
The increase in the inflation rate was led by a 24.9% annual jump in the price of food and non-alcoholic beverages. The cost of furniture and household equipment climbed 22.7%.
Inflation figures for July exceeded the average forecast by 18.6% and 18.5% in surveys conducted by Bloomberg and Reuters respectively of professionals in the financial industry.
In early June, Erdoğan called for rate cuts in July or August to help cut costs for businesses, triggering a massive sell-off of the lira. The currency has weakened to successive record highs against the dollar over the past three years. The central bank will meet to decide interest rates on August 12.
Producer price inflation accelerated to 44.9% in July from 42.9% in June, the statistics institute said. This is the highest level since September 2018, a month after a currency crisis swept through the economy. The PPI stood at 8.33% in July of last year.
The pound was trading up 0.2% to 8.32 per dollar following the release of inflation data. It hit a final record above 8.8 per dollar in early June, after Erdoğan called for rate cuts.
“Most likely, real inflation is now well above 19%, which means the central bank is less likely to cut in August as Erdoğan previously indicated in early summer. Less pressure on the lira as a result, for now … “economist Erik Meyersson said on Twitter.