Turkish inflation accelerated again and may be just months away from peaking, soaring to levels not seen since the aftermath of the Asian financial crisis in 1997 as the central bank sticks with its ultra-loose monetary course.
The upward march of consumer prices has already forced officials and economists to rewrite forecasts several times this year, as efforts to stabilise the lira falter at a time when Russia's invasion of Ukraine is inflating the cost of everything from food to energy.
Data on Wednesday showed that annual inflation was up to 79.6 per cent last month from 78.6 per cent in June, gaining slightly less than forecast by economists in a Bloomberg survey. In Istanbul, Turkey’s most populous city, price growth exceeded 99 per cent in July from a year earlier.
Even in a world consumed by the fastest inflation in decades, Turkey is an outlier that ranks behind only a handful of countries, such as Zimbabwe, Venezuela and Lebanon, where the pace of price increases has already topped triple digits.
Loosening inflation’s grip is proving harder to achieve in Turkey because the central bank has refrained from raising its key rate from 14 per cent under pressure from President Recep Tayyip Erdogan. The Turkish leader believes — contrary to mainstream economics — that higher rates cause faster inflation.
“We see no signs of a stabilisation in the macroeconomic environment for Turkey arising from the current unorthodox monetary policy settings and recommend refraining from investing in Turkish assets,” said Nenad Dinic, emerging markets equities strategist at Bank Julius Baer.
The approach put Turkish policymakers out of sync with the most aggressive global monetary tightening since the 1980s and pushed the country’s rates deeply below zero when adjusted for prices.