Turkish inflation hits 19-year high in pound crisis

Turkey’s annual inflation rate hit its highest level since 2002 in December, according to official data on Monday, after a currency crisis triggered by the unconventional economic policies of President Recep Tayyip Erdogan.

Consumer prices jumped to 36.1% last month compared to the same period in 2020, from 21.3% in November, according to the Turkish statistics office.

This figure is the highest since October 2002, when inflation reached 33.45%, before Erdogan’s party came to power.

It is also more than seven times the official government target.

Erdogan’s enduring success has often been attributed to the development and prosperity his government enabled after a financial crisis in 2001.

His Islamic-born party came to power the following year, and he has dominated Turkish politics for the past two decades as prime minister and president.

But he faces an increasingly difficult path to re-election in the polls due to be held by mid-2023.

Opinion polls show he lost in the second round to most of the main rivals, and his ruling alliance ceded control of parliament to an increasingly popular group of opposition parties.

But Erdogan has stuck to his policy, opposing interest rate hikes – which he calls “the mother and father of all evils” – to fight inflation.

High interest rates slow activity and slow economic growth.

But central banks increase their policy rates out of necessity when inflation gets out of hand.

Erdogan on Monday accused “the elites” of profiting from “unearned interest income”, sticking to his pledge not to increase borrowing costs.

– The collapse of the read –

The Turkish lira lost 44% of its value against the dollar in 2021, with losses accelerating late last year, when Erdogan orchestrated a series of steep interest rate cuts.

The dollar climbed to an all-time high of nearly 18.4 lira as Erdogan announced further support measures for the currency last month, backed by heavy indirect interventions on interest rates.

The exchange rate has since fallen back to around 13 lire to the dollar, although Turkey’s currency lost another 2% after the latest inflation measure was announced.

One dollar was worth 7.4 lire at the start of 2021.

The monthly inflation reading has become a politically sensitive issue in Turkey, with opposition leaders saying the government is pressuring the statistics agency to underestimate price increases.

They show separate readings prepared for independent economic institutes such as the Inflation Research Group (ENAG), which calculated last month’s annual inflation rate at 82.8%.

Official readings show that the prices of most staple foods are rising significantly above the annual rate of inflation.

The price of milk, yogurt and sunflower oil all jumped about 75 percent on the year, while that of chicken rose 86 percent.

Erdogan raised the minimum monthly take-out rage by 50%, raising it to 4,250 lire (about 310,275 lire), which economists say will fuel inflation further.

His government has also sharply increased the costs of utilities, including heat, gas and electricity.

raz / zak / lth

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