Turkey’s annual inflation jumped far more than expected to 36.08% year-on-year in December, the highest since September 2002, data showed on Monday reflecting a plummet in value of the lira late last year.
Month-on-month, consumer prices rose 13.58%, the Turkish Statistical Institute said, compared to a Reuters poll forecast of 9%. The annual inflation forecast was 30.6%.
The lira was trading at 13.6 against the dollar after the data, 3% weaker on the day but off an early low of 13.92. It shed 44% of its value last year after a volatile November and December.
The producer price index rose 19.08% month-on-month in December for an annual rise of 79.89%, the data showed, reflecting soaring in import prices due to the currency crash.
It was the highest CPI annual since the 37.0% of September 2002, before President Tayyip Erdogan’s AK Party first came to power in November of that year. The forecasts of 13 economists ranged between 26.4% and 37.3%.
Consumer prices were led higher by transport prices, which soared 53.66% year-on-year, while heavily weighted food and drinks prices jumped 43.8%.
“This reflects a vicious cycle of demand-pull inflation, which is very dangerous because the central bank had implied the price pressure was from supply constraints, and that it couldn’t do anything about it,” said Ozlem Derici Sengul, founding partner at Spinn Consulting, in Istanbul.
“Rates should be immediately and aggressively hiked,” she said. “Annual inflation will probably reach 40-50% by March.”
Inflation has been around 20% in recent months, driven by a lira slide to record lows after the central bank slashed its policy rate by 500 basis points since September, under pressure from Erdogan.
The central bank has said temporary factors were driving prices higher and forecast that inflation would follow a volatile course in the short term.
The lira hit a record low of 18.4 against the dollar in December before rebounding sharply the week before last after state-backed market interventions and after Erdogan announced a scheme to protect lira deposits against currency volatility.
Inflation has been mostly in double digits and well above emerging market peers for most of the last five years, eating into Turks’ earnings and hitting public support for Erdogan.
The central bank’s year-end inflation forecast was 18.4% in a report published in late October.
![[File photo] A worker harvests grapes at the Domaine Pinson vineyard in Chablis, France, September 21, 2021.](https://www.sabcnews.com/sabcnews/wp-content/uploads/2023/01/grapes-R-120x86.png)
