(Bloomberg) — Turkey’s inflation has risen sharply this year, underscoring the central bank’s challenge as it tries to stem rising living costs.
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The annual rate of inflation rose to 58.9% last month from about 48% in July, according to the Turkish Bureau of Statistics, as food and energy costs rose. The average estimate among economists at Bloomberg was 55.9 percent.
The month-on-month figure was 9.1%, also well above estimates. The core index, which excludes volatile commodities, had an annual gain of 64.9 percent.
Exchanged ahead of the data, the Turkish lira weakened 0.2% against the dollar as of 10:29 am in Istanbul. It has lost about 30% of its value so far this year.
After President Recep Tayyip Erdogan won re-election in May, he appointed Finance Minister Mehmet Simsek and Central Bank Governor Hafiz Gai Erka to restore price stability as a priority.
Efforts to end the era of ultra-low borrowing costs have so far included three rate hikes by the central bank to 25% and the loosening of some regulations to make credit cheaper.
But the second-largest rate cut in emerging markets this year is still creeping into the economy and the government’s recently announced tax hikes to fund a widening budget deficit are having an impact on prices. A stronger-than-expected appreciation in the lira at the end of August could ease some of the pressure on prices.
What Bloomberg Economics Says…
“In our view, the recent appreciation of the lira is unlikely to trigger rate cuts, but could contribute to lower inflation for the rest of the year. We stick to our call for year-end inflation of 57 percent, but recognize risks on both sides.”
– Selva Bahar Baziki, Economist. Click here to read more.
Most Wall Street analysts say more tightening is needed. A Bloomberg survey of economists from August 25 to August 30 showed that mid-year inflation expectations rose to 65%.
Analysts at Goldman Sachs Group Inc., led by Kevin Daly, said in a report before the data that the impact of the latest measures, including a higher rate hike, “will only be felt with delay.” “Therefore, we expect strong spending pressures to push inflation higher in the near term.”
–With help from Joel Rinneby.
(Adds chart, update with performance of lira in fourth paragraph.)
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