Turkish inflation accelerates at a rate never seen in two and a half years

Turkish inflation accelerated to its fastest rate in two-and-a-half years in September as President Recep Tayyip Erdogan stepped up his unconventional efforts to bring down soaring prices. Data released on Monday by Turkey’s official statistics agency showed that the consumer price index rose at an annual rate of 19.58 per cent last month — up from 19.25 in August.

The rate is nearly four times the central bank’s official inflation target and the biggest yearly increase since March 2019. Erdogan, whose ruling party is suffering from historically low poll ratings, has faced growing public discontent over the soaring cost of living. But the Turkish leader, who believes contrary to economic orthodoxy that high interest rates cause inflation rather than curb it, has also pressured the country’s central bank to lower borrowing costs even amid rising prices. The bank slashed its benchmark lending rate last month.

The decision, which left Turkey with the deepest negative interest rate of any emerging market, put fresh pressure on the embattled Turkish lira. Public anger has focused in particular on food prices, which have accelerated even faster than the headline inflation rate. The cost of food rose almost 29 per cent in September, according to the latest data. Erdogan has blamed rising prices on “opportunists” in the food and retail sectors. Last month his government announced a fresh round of investigations into supermarket chains that it accused of adopting “unreasonable” price increases.

On Sunday, the Turkish president said he had ordered agricultural co-operatives to open about 1,000 new branches across the country in order to provide “suitable” prices for basic goods. “We gave the order for about 1,000 of these businesses to open around Turkey, starting at 500 square meters each,” he said. “These are places where prices are suitable to our citizens’ budgets.” Erdogan, who built much of his early political success on the back of ushering in rising prosperity, has increasingly developed a reputation for eccentric and erratic solutions to economic problems in recent years. In 2018, in the wake of a currency crisis that wiped almost 30 per cent off the value of the lira, the government launched a campaign urging retailers to hold down their prices. The following year, the government launched municipal-run “people’s vegetable” stalls in major cities in an effort to combat what Erdogan called “food terrorism”.

Analysts warn that the combination of high inflation and low interest rates could lead to fresh pressure on the Turkish lira, which has hovered in recent weeks above what would have been a record low of nine to the dollar. “The further rise in both headline and core inflation last month will provide some food for thought for the central bank, but we doubt that it will prevent it from pushing ahead with further interest rate cuts,” Jason Tuvey, an economist at the London-based consultancy Capital Economics, wrote in a note to clients after Monday’s data. “Political pressure on the institution for lower rates appears to be swaying decisions.”