Another acceleration: almost 20 percent inflation in Turkey

In Turkey, life has become more expensive for the third month in a row. The inflation rate is thus approaching the 20 percent mark more and more.

Bad news for the people in Turkey: For the third month in a row, inflation has accelerated. In August consumer prices climbed 19.25 percent year-on-year, as the Turkish statistical office announced today. Annual inflation thus increased even more than in the previous months. In July the increase was 18.95 percent and a month earlier 17.53 percent. Most recently, the inflation rate exceeded the 20 percent mark in early 2019.

The driving force was higher food prices. These increased in price by an average of 29 percent. In July the increase was only 25 percent and in June 20 percent. The rise in food prices has increased noticeably since June, after the rate of increase had been stable in the previous months. Company producer prices even increased by 45.5 percent in August. These are not good omen for the further price development. After all, the companies’ rising manufacturing costs are likely to make themselves felt, at least in part, in general consumer prices with some delay.

Unexpected development

On the other hand, a slight decline in the inflation rate was expected on the market. The development comes as a surprise insofar as the exchange rate of the local currency, the lira, has recently been relatively stable. This meant that the influence of “imported” inflation should actually have decreased. Turkey has almost traditionally had a trade deficit. This means that the country imports significantly more goods than it exports.

In turn, experts consider a stable lira to be necessary in order to sustainably lower the high inflation rates in Turkey. In this respect, the development announced today is a setback for President Recep Tayyip Erdogan, who in the past had often interfered in decisions of the central bank and even had the respective head of the central bank replaced several times.

In the past, Erdogan had, contrary to the generally accepted economic theory, often taken the view that higher key interest rates would drive inflation and, in contrast, called for interest rate cuts.

The Turkish lira reacted to the inflation data with losses. For one euro, 9.92 lira had to be paid for at times, after 9.83 lira the day before. After all, the lira’s record low is still a long way off. At that time, one euro was worth 10.73 lira. The more lira that have to be paid for one euro, the weaker the Turkish currency is.