Annual inflation in Turkey surged to 58.94% in August, up from the 47.83% measured in July, data from TUIK (Turkey’s Statistical Institute) showed on Monday.
The steep ascent in inflation is driven significantly by soaring food and energy costs, causing mounting distress among Turkish citizens and presenting a complex predicament for the nation’s newly reshuffled economic leadership.
Moreover, the month-on-month inflation rate stood at 9.1%, markedly exceeding anticipations. The core inflation index, which omits volatile elements, registered a staggering annual increment of 64.9%.
The Turkish lira exhibited signs of volatility prior to the data announcement, weakening by 0.2% against the US dollar as of 10:29 a.m. local time in Istanbul. This marks a continuation of the lira’s dwindling performance this year, having already depreciated by approximately 30%.
The escalating inflation crisis has compelled President Tayyip Erdogan, fresh from his reelection triumph in May, to intensify efforts to restore price stability. A significant step in this direction was the appointment of Finance Minister Mehmet Simsek and central bank Governor Hafize Gaye Erkan, tasked with overseeing the mammoth responsibility of arresting the inflation spiral.
A closer inspection of the inflation dynamics reveals that the cost of food and non-alcoholic beverages, accounting for roughly a quarter of the inflation basket, surged to an annual rate of 72.9% in August, up from 60.7% in July. Moreover, services inflation has also accelerated at an alarming pace, reaching 79.6% from 69.7% during the same period. Notably, the producer price index, often seen as a precursor to broader inflationary pressures, also climbed to 49.4% on an annual basis, up from 44.5%.
Amidst this grim backdrop, the central bank has embarked on a tightening spree, with borrowing costs witnessing an upward revision on three separate occasions, now standing at 25%. These measures represent a departure from an era characterized by ultra-low borrowing costs and the relaxation of some regulations that were previously instituted to maintain inexpensive credit availability.
Despite these efforts, the Turkish economy continues to feel the repercussions of the second-largest currency depreciation in emerging markets this year. This depreciation is accentuating the effects of recent governmental tax increments, introduced to bridge a burgeoning budget deficit. However, the recent surge in the lira, spurred by a larger-than-expected rate hike in late August, might offer some respite by potentially slowing the pace of price increases.