Turkey’s Inflation Recovers despite Decline in Turkish Lira

UTC by Godfrey Benjamin · 3 min read
Turkey’s Inflation Recovers despite Decline in Turkish Lira
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The Central Bank raised the country’s key interest rate from 8.5% to 15% last month.

Despite the decline of the Turkish Lira following the re-election of President Recep Tayyip Erdogan, Turkey’s inflation rate is showing signs of recovery.

According to data released by the Turkish Statistical Institute, Turkey’s consumer price index (CPI) rose by 3.92% on a month-on-month basis in June. Additionally, On a year-on-year basis, Turkey’s inflation rate rose by 38.21%, slightly lower than Reuters’ forecasts of 39.47%.

While still high by global standards, this reading came in lower than the forecasted 4.84% by Reuters and marked a significant tick compared to the 0.04% rise observed in May.

Among the various categories contributing to the CPI growth, tobacco, and alcoholic beverage prices experienced the largest gains, surging by 11.13%. This notable increase in prices for these goods likely influenced the overall CPI reading for the month.

Additionally, prices in the restaurant and hotel sector saw a modest increase of 4.31%, contributing to the overall inflation rate.

Managing the Economic Crisis in Turkey

In recent years, Turkey has been grappling with stubbornly high inflation rates, which have adversely affected the purchasing power of its citizens and strained the overall economy. In a previous report, Wells Fargo’s Emerging Markets Economist and FX Strategist Brendan McKenna projected that the Lira could drop as low as 23 against the dollar.

However, the Turkish government has been implementing various measures to combat inflation.

In an effort to address the economic challenges, Turkish President Recep Tayyip Erdogan appointed Mehmet Simsek as the new Treasury and Economy Minister. Simsek, known for his market-friendly policies, is expected to bring stability and implement measures to tackle the economic difficulties in the nation

Additionally, the Central Bank raised the country’s key interest rate from 8.5% to 15% last month. The apex bank affirmed its commitment to further gradual monetary tightening until the inflation situation improves.

Turkey’s Inflation: Analysts Express Their Views

This unexpected development has caught the attention of economists and analysts, sparking discussions about the factors influencing Turkey’s inflation dynamics and the implications for the country’s economic outlook.

Conotoxia’s Market Analyst Bartosz Sawicki expressed a pessimistic outlook, stating that there is “little reason for optimism.” Sawicki’s perspective reflects a cautious stance toward Turkey’s economic situation, despite the recent moderation in inflation rates.

Sawicki noted that the recent freefall of the Turkish Lira is starting to have adverse effects on the economy, reigniting cost pressures. This perspective aligns with the notion that a weakened currency can lead to inflationary pressures, as imported goods become more expensive and businesses face higher production costs.

On the other hand, Timothy Ash, Senior EM Sovereign Strategist at BlueBay Asset Management, acknowledged that the inflation numbers could have been higher given the significant depreciation of the Turkish Lira following the elections.

Additionally, Ash noted the importance of the role of the Central Bank in implementing appropriate policies in order to manage inflation.

Currencies, Market News, News
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