Status: 04.10.2021 13:53
Inflation in Turkey is higher than it has been in two and a half years. Food prices in particular have risen sharply compared to the previous year. The falling lira is becoming an increasing problem.
In Turkey, consumer prices increased by 19.58 percent in September compared to the same month last year, according to official data. This is the highest inflation rate since March 2019. In August the increase was 19.25 percent. Compared to the previous month, consumer prices rose 1.25 percent in September. However, experts had forecast slightly higher values.
Key rate down
Groceries and non-alcoholic beverages rose particularly strongly in the past month: they cost almost 29 percent more than in September 2020. Compared to the previous month, however, the prices rose only minimally by 0.05 percent. According to experts, this could indicate that food prices may have peaked.
Despite the strong inflation, the central bank recently lowered its key interest rate to 18 percent. Experts believe that if inflation is high, it should actually raise its interest rates. Recently, President Recep Tayyip Erdogan had often interfered in decisions by the central bank and called for interest rate cuts.
Experts believe, however, that a higher key interest rate could support the rate of the local currency, the lira, which could make imports cheaper again. Central bank chief Sahap Kavcioglu said with regard to food prices: influencing them with monetary policy is difficult. Their development is influenced by the drought and other factors.
Lira weakness is likely to continue
The Turkish lira fell 0.2 percent to 8.88 lira per US dollar after the inflation data was announced. The price has already fallen by around 17 percent this year. The devaluation of the lira harbors a further risk of inflation, as the country, which is poor in raw materials, is dependent on high imports, which usually have to be paid for in foreign currency and are therefore naturally becoming more and more expensive. As a result, the prices for other foreign goods are also rising sharply.
Economists assume that the central bank will lower its key interest rate further by the end of the year. Research institutes forecast a reduction to 15 percent by mid-2022. Jason Turvey, an economist at Capital Economics, expects the Turkish central bank to cut its key interest rate further this month due to political pressure. Turvey therefore predicts the lira weakness will continue.