Inflation in Turkey rose to 61 percent year-on-year last month, Turkey’s Bureau of Statistics said Monday. That is the highest level since 2002.
Inflation has risen rapidly over the past year, mainly due to a series of interest rate cuts by the Turkish central bank and the war in Ukraine. In March last year, the currency depreciation was 16 percent.
The largest price increase was in the transport sector, which also includes energy: 99 percent. Oil and gas prices have risen sharply, especially since the Russian invasion of Ukraine. Food prices rose by 70 percent in the past year. According to analysts, these figures show that the unorthodox policy of the central bank does not contribute to lowering inflation, but rather fuels it.
hard landing
Harvard economist Kenneth Rogoff, former chief economist of the International Monetary Fund, warned in the business paper last week Dunya that Turkey “may be heading for a deeper economic crisis than two decades ago”. According to Rogoff, fighting inflation will be even more painful, because the central bank should have raised interest rates much earlier.
“It is very difficult for Turkey to reduce inflation without a serious hike in interest rates,” Rogoff said. “But as long as global growth and the interest rate environment are still favorable enough, despite the war, there is time to prevent the economy from making a hard landing.” However, the central bank does not appear to be planning to raise interest rates for the time being.
Turkish President Erdogan wants to stimulate the growth of the national manufacturing industry with the help of a cheap currency. That makes export more profitable. But the weak lira, which has already lost 9 percent against the dollar this year, is actually translating into higher inflation as imports become more expensive. And Turkey is heavily dependent on that. This applies not only to energy imports, but also to food products and semi-finished products for industry.