Dhe cost of living in Turkey rose by 21.3 percent in November compared to the same month last year. The national statistics office announced on Friday in Ankara. This once again exceeded the estimates on the market, where 20.7 percent had been expected. In a month-on-month comparison, prices rose by 3.1 percent.
The prices for transport, rents, in restaurants and for groceries increased at an above-average rate. The latter was therefore 27.1 percent more expensive year-on-year. Consumers, however, report sharper price increases for groceries in shops and markets.
According to official data, producer prices rose by 10 percent in the course of November, year-on-year by 54.6 percent and thus to the highest value since April 2002 according to the business agency Bloomberg. The increase in consumer prices in Turkey continued with a brief interruption accelerated every month in a row since October last year in May and reached its highest level in three years.
The lira has depreciated very strongly for months
The main reason for this is the sharp and persistent decline in the value of the local currency, the lira, which increases the price of important imported goods such as energy, raw materials and pharmaceuticals. This has many consequences for the population. Trade unions, for example, complain about a rapid loss of income for workers.
The state minimum wage of 3577 lira (230 euros) per month is becoming more and more the average wage in the country, calculated the research center of the Confederation of Progressive Trade Unions of Turkey (DISK-AR). In the face of inflation and the lira crisis, “the wages of the working class are getting lower every day”.
Around 3.4 million employees, or 18 percent of all wage earners in Turkey, earned even less than the minimum wage of 2825 Turkish Lira net (181 euros). Only in Albania is the minimum wage lower than in Turkey. The lira lost again in value in the morning, but was then able to catch up at the previous day’s level around 13.70 lira per dollar. On Wednesday it had marked a new all-time low of 13.91 lira per dollar. The euro was quoted at 15.60 lira.
President Erdogan demands interest rate cuts from the central bank
The reason for the weakness is President Recep Tayyip Erdogan’s policy of lowering interest rates to combat inflation. Only the day before had he underpinned this strategy, acknowledged with incomprehension by economists, with the dismissal of Finance Minister Lütfi Elvan – a course that so far has only led to more inflation and a weaker currency.
The acceleration of inflation lowers real interest rates in Turkey, which were in March at 2.75 percent, to minus 6.3 percent. Since the central bank wants to further reduce the key interest rate from the current 15 percent at its meeting on December 16, the real interest rate in lira-denominated investments is likely to fall further. It is already one of the lowest in emerging markets.
Analysts also assume that actual inflation in the country is already higher because the latest sharp drop in value, fueled by statements by Erdogan, did not occur until mid-November. Because important prices may have been recorded beforehand, it is “unlikely that the devaluation of the exchange rate will already be fully reflected in the November figures,” wrote Commerzbank analyst Tatha Ghose.
The rate of inflation could rise to 25 or even 30 percent
He expects the values to continue to rise in the coming months. “But whether inflation will accelerate to 25 percent or 30 percent is hard to tell from the data.” The Fitch rating agency expects inflation to reach 25 percent by the end of this year and an average of 20 percent in 2022 by 2023 will mark one of the highest values in an international comparison.
In light of the new uncertainties, Fitch downgraded the country’s credit rating from stable to negative (BB-). The monetary policy easing and further rate cuts or economic incentives ahead of the 2023 presidential elections caused the lira to depreciate sharply with “unprecedented volatility”. That is risky for macroeconomic and financial stability.
Sticking to a strongly negative real key interest rate could increase the risks to financial stability, for example if investor confidence were shaken “and possibly endangered the previously stable access of banks and companies to external financing,” warns Fitch. In the next 12 months, $ 168 billion in foreign debt would become due.
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