A man sells slippers in Eminonu on May 5, 2022 in Istanbul, Turkey. The country has enjoyed rapid growth for years, but President Erdogan has for years wisely refused to raise interest rates to cool the ensuing inflation. The result is a sharp decline in the Turkish lira and much less purchasing power for the average Turk.
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Inflation in Turkey rose by a staggering 73.5% year-on-year in May, its highest level in 23 years as the country struggles with rising food and energy spending and President Recep Tayyip Erdogan’s long unorthodox monetary strategy. politics.
Food prices in the country of 84 million people have risen by 91.6% year-on-year, the country’s statistics agency said, drawing attention to the pain regular consumers face as supply chain problems Russia’s rising energy costs and war in Ukraine are fueling global inflation.
Turkey has enjoyed rapid growth for years, but Erdogan has for years deliberately refused to raise interest rates to cool the ensuing inflation, describing himself as a sworn enemy of interest rates. The result is a sharp decline in the Turkish lira and much less purchasing power for the average Turk.
Erdogan has instructed the country’s central bank – which analysts say is independent of it – to cut interest rates on loans many times over last year, although inflation continues to rise. The heads of the central banks, who expressed opposition to this course of action, were fired; by the spring of 2021, the central bank of turkey had four different governors in two years.
Turkish lira and US dollar
Resul Kaboglu NurPhoto via Getty Images
The Turkish president has vowed to unveil a new economic model that will boost export wealth thanks to the cheaper pound, and then tackle inflation by getting rid of Turkey’s long-running trade deficit. This has not happened, and now the incredible cost of energy imports, which have to be paid in dollars – many more dollars, thanks to the weakness of the pound – is putting strong pressure on the economy.
Economic analysts expect the trajectory of inflation in Turkey to only get worse.
“The laser focus on heterodox measures against conventional monetary policy is unlikely to address the inflation challenge, and we expect levels to exceed 80% year-on-year in Q3-22,” said Ehsan Homan, director of emerging markets research for Europe, the Middle East and Africa at MUFG Bank, wrote on Twitter after the publication of figures.
Speaking to CNBC, Homan added that he expects inflation in Turkey “to remain north of 70% on an annual basis until November due to the merger of rising commodity prices, rising domestic production costs and the sharp depreciation of the pound.”
“Turkey is back in the era of inflation in the 1990s. Erdogan seems to have lost his last confidence in the economy, “Holger Zshapitz, financial editor at the German daily Die Welt, wrote on Twitter. “Erdogan’s unorthodox $ 790 billion strategy to run the country’s economy continued to have the opposite effect,” he wrote in another tweet.
The figure of 73.5% for the Turkish consumer price index rose by 70% the previous month.
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