ANKARA: Turkey reported its highest inflation rate in 15 years Mondayfuelled by a spectacular drop in the Turkish lira, as analysts predictedthat worse is probably to come.
Consumer prices rose 17.9 per cent in August from the same month in theprevious year — their highest increase since late 2003 — up from 15.85 percent in July, according to the Turkish statistics office (TUIK), increasingpressure on the central bank to hike interest rates.
The figure was higher than the Bloomberg consensus forecast of 17.6 percent.
The lira was worth 6.6 against the US dollar, a loss of nearly 1.5 per centon the day after 0930 GMT, rallying slightly after the central bank’sindication that it would act at the next monetary policy committee meetingon September 13.
The highest annual rise in the month was in the cost of transport, up 27.13per cent, while prices for food and non-alcoholic drinks were up 19.75 percent, TUIK said in a statement.
Last month the Turkish lira was sent into a tailspin by a bitter diplomaticspat with the United States over Turkey’s detention of an American pastorfor almost two years on terror-related charges.
Washington imposed sanctions on two Turkish ministers last month anddoubled steel and aluminium tariffs, putting further pressure on theTurkish currency.
At one point the lira weakened to more than 7 against the greenback beforeit rallied, although the currency’s loss against the dollar in the lastmonth alone still stands at over 25 per cent.
As tensions between the NATO allies remain high, Turkish President RecepTayyip Erdogan on Sunday vowed that Ankara would pursue non-dollartransactions in trade with Russia and other countries, and accused the USof behaving like “wild wolves”.‘Effects of weaker lira’
Jason Tuvey, senior emerging markets economist at London-based CapitalEconomics, said the inflation rise “largely reflects the effects of aweaker lira”.
But Deniz Cicek, economist at Istanbul-based QNB Finansbank, cautioned thatthe full effect of the “substantial” currency depreciation had not yet beenseen.
“As a result, even without additional depreciation, we see the headlineinflation to exceed 20 per cent in the upcoming months,” Cicek said in anote.
Turkish Treasury and Finance Minister Berat Albayrak, who is Erdogan’sson-in-law, said last week 2019 would be a “very strong” year in Turkey’sfight against inflation as he sought to reassure investors that Ankara wasaware of the issues troubling its economy.
Albayrak was due to meet with British finance minister Philip Hammond onMonday, after his meeting in Paris last week with French counterpart BrunoLe Maire.Central bank promises
Markets have been hoping for a significant rate rise to calm the currencycrisis but economists fear that Erdogan is pressuring the nominallyindependent central bank not to raise rates in order to maintain growth.
Erdogan previously called rates the “mother and father of all evil” andargued higher rates lead to higher inflation, flying in the face ofeconomic orthodoxy.
After Monday’s data release, the bank sought to reassure the markets thatit will take the “necessary actions to support price stability” inSeptember after recent developments suggested “significant risks to pricestability”.
“Monetary stance will be adjusted at the September monetary policycommittee meeting in view of the latest developments,” the bank said in astatement.
But Tuvey of Capital Economics said in a note that the rate hike wouldlikely be around 200 basis points, lower than the 700 to 1000 bps that themarkets want to see. – APP/AFP