Dhe currency devaluation in Turkey continues to increase, but its speed is flattening out. According to the Turkish Statistical Office on Monday, the inflation rate in August was 80.2 percent higher than in the previous year. Compared to the previous month, the consumer price index rose by 1.46 percent. The annual increase was lower than analysts had expected at 81 percent. However, the Turkish public has long been skeptical about the official data. A much-cited group of economists in Turkey estimates that the rate of inflation will double.
According to the official data, the prices for transport and traffic increased the most compared to August 2021 by 117 percent, food became more expensive by an above-average 90 percent. Earlier, the Istanbul Chamber of Commerce reported a 99.9 percent rise in retail prices in the country’s largest and most prosperous city in August. The month-on-month growth of 2.3 percent remained below the 4.1 percent of the previous month.
The government in Ankara blames the price shock on the energy markets as a result of the Russian invasion of Ukraine for the high inflation. However, the steep increase in the inflation rate was observed earlier and is attributed by economists to the ultra-loose monetary policy of the central bank, which is dependent on President Recep Tayyip Erdogan. Erdogan wants to boost the economy, especially exports, with low interest rates and is willing to accept high inflation and a weak currency to do so.
Lira weakest emerging market currency
The lira has already lost 27 percent against the dollar this year, more than any other emerging market currency. On Monday, a dollar cost 18.22 lira, a year ago it was 8.31 lira. The picture is similar for the euro: at 18.07 lira, it was almost twice as expensive as a year ago at 9.59 lira. This is at best a reason for joy for the many vacationers from Germany and Europe who have found their way to Turkish beaches again this year.
Even if energy prices have eased from a high level worldwide, further inflationary pressure is building up in Turkey. Core inflation adjusted for energy and food rose by 3 percent to just under 73 percent. Producer prices rose 144 percent year-on-year and 2.3 percent mom, according to Turkstat. Experience has shown that they impact consumer prices with a time lag. At 350 percent, energy prices increased the most.
Further price increases “inevitable”
There is no relief in sight here: the price increase for gas and electricity of 20 percent for households and up to 50 percent for companies announced on September 1 is likely to further tighten consumers’ wallets in the current month. Necdet Buzbaş, president of the Turkish Food Industry Association, said it will be “inevitably” reflected in product prices. “We expect the increases to be reflected in products by the end of September.”
The business newspaper “Dünya” quoted other managers who warned of possible job cuts, production restrictions, shutdowns and the relocation of production. It is not only the consequences of the domestic economic misery that threaten.
Fears of recession in Europe cast shadows
Even though growth was high in the first half of the year and exports are booming, fears of recession are casting a deep shadow over Turkey on what is by far the most important sales market in the EU and Europe.
According to the medium-term economic plan published by the government in Ankara at the weekend, Turkey’s gross domestic product will increase by around 5 percent in this and the following years. The government also raised its forecast for price growth from almost 10 percent to 65 percent in the current year. Next year, she expects a slowdown to about 25 percent.