Turkey’s Inflation Rate Surged to 36.1% in December as Lira Crashed

Turkey has seen prices rise and rates not seen for twenty years as the Turkish Lira collapse sending imported goods sky high. Turkey’s annual inflation rate stood at 36.1% in December, for the month consumer prices rose 13.58%. Staples such as transportation and food are rising at an even faster rate. The annual CPI was the highest since 37.0% in September of 2002, two months before President Erdogan’s AK Party first came to power.

Istanbul food bazaar

Soaring import prices pushed the December’s producer price index up 19.08% month-on-month and 79.89% year on year. Annual transportation prices soared 53.66% while the food and drinks basket jumped 43.8%, the CPI data showed.

Erdogan said he was “saddened” that Turks had to face such high inflation levels and pledged to bring it down to single digits as soon as possible.

Turkey’s lira had collapsed after Turkey’s central bank lowered the benchmark by 500 basis points since September. The cuts drove down the lira, which weakened per dollar for the first time over 17 to a record low of 18.4 as the central bank of Turkey slashed interest rates under a drive by Erdogan to prioritize credit and exports over currency and price stability.

Turkey Lira volatility in 2021

On December 20 with the Turkish Lira in freefall Turkey’s President Recep Tayyip Erdogan announced extraordinary measures to save it from the depths. Turkey introduced a new program that will protect savings from the prices moves and gave the TRY a reprieve. The lira collapse accelerated with Turkey Central Bank sharp rate cuts. Erdogan vows to win his so called “economic war of independence”. With Turks not affording bare necessities as inflation runs rampant from the collapsed currency and elections in sight push has come to shove.

On Monday the currency whipsawed down 5% then up 3% on the release. It stood at 13.0790 versus the dollar at 1734 GMT, some 0.8% firmer than Friday’s close. The bounce came after the CBRT, needing to replenish its depleted reserves, said it had asked exporters to sell 25% of their hard-currency revenues to the bank for lira.

Reuters reported that some economists predict inflation could reach as high as 50% by spring unless the direction of monetary policy is reversed. Goldman Sachs said it would remain above 40% for most of the year ahead.

“Rates should be immediately and aggressively hiked because this is urgent,” said Ozlem Derici Sengul, founding partner at Spinn Consulting in Istanbul.

The central bank was however unlikely to act, she added, and annual inflation “will probably reach 40-50% by March”, by when administered price rises would have been added into the mix, including a 50% minimum wage hike. Reuters

From the weak Lira Turkey’s trade data was showing signs of the J curve impact. Exports surged by a third to $225 billion last year. Erdogan took time to comment on the move, “We have only one concern: exports, exports and exports,” he said in a speech.

Source: Reuters

From The TradersCommunity News Desk