“shock news”
Inflation in Turkey is through the roof
02/03/2022, 11:11 am
In Turkey, inflation is gaining momentum and is approaching the 50 percent mark. Angered by the numbers, President Erdogan has already fired the head of the statistics agency. Analysts fear a new crisis in the Turkish currency.
Inflation in Turkey has continued to accelerate from extremely high levels. According to the national statistics office, consumer prices rose by 48.7 percent in January compared to the same month last year. In December, the increase was 36 percent. In a monthly comparison, consumer prices also rose sharply by 11.1 percent.
The high price increase is primarily the result of the weak lira, as it makes imports more expensive. Turkey is heavily dependent on imports, especially raw materials and energy.
After a dramatic fall in 2021, the Turkish government has managed to stabilize the national currency by covering losses from currency fluctuations under certain conditions. So far, however, nothing has changed in the loose orientation of Turkish monetary policy, which experts say is the main reason for the weak lira.
Erdogan wants low interest rates
The – formally independent – Turkish central bank has lowered interest rates significantly in recent months despite high inflation. President Recep Tayyip Erdogan is calling for interest rate cuts and has changed the head of the central bank several times in order to achieve this.
Erdogan wants to stimulate the economy with low interest rates and a weak lira. Turkish products become cheaper on the world market and holidays in Turkey are cheaper for foreign tourists. It is also becoming more attractive to take out loans. Erdogan hopes that high inflation will soon come down and that the current consequences are only temporary collateral damage.
Raising interest rates is a common tool used by central banks to combat inflation. But Erdogan, contrary to economic doctrine, claims that high interest rates cause high inflation.
Against this background, Commerzbank analyst Tatha Ghose speaks of another day of shocking news from the Turkish inflation front. “Even the (non-)reaction function of the central bank is as clear as dumpling broth.” As a result, today’s data should not impact rates.
chief statistician fired
Meanwhile, the market is concerned about the recent ouster of the head of the national statistics agency over the inflation figures and what that might mean for the reliability of future data. The cocktail of little credible monetary policy, errors and tribulations of the central bank and in-between steps by the government is an old acquaintance and is very likely to trigger the next lira crisis sooner or later.
In view of the rapid increase in the inflation rate, Erdogan had fired the head of the national statistics authority, Sait Erdal Dincer, and replaced him with the former deputy head of the Turkish banking supervisory authority, Erhan Cetinkaya.
Erdogan accuses Dincer of exaggerating the extent of the economic crisis in Turkey. Dincer, on the other hand, justifies the inflation figures he has given. “I have a responsibility to 84 million people,” he told the business daily Dünya. It is not possible to publish other inflation figures than those determined by his authority.