Turkish inflation hit a new 24-year high of 79.6 percent in July, according to figures released on Wednesday, as the lira’s continuing weakening and rising global oil and commodity prices drove prices higher, but the price increases were lower than expected.

Inflation started to rise last fall, when the lira fell after the central bank progressively reduced its policy rate by 500 basis points to 14 percent as part of President Tayyip Erdogan’s easing cycle.

Consumer prices grew 2.37 percent month on month in July, according to the Turkish Statistical Institute, falling short of the 2.9 percent predicted by Reuters poll. Consumer price inflation was expected to reach 80.5 percent on an annual basis.

According to Jason Tuvey, senior emerging markets economist at Capital Economics, annual inflation may be nearing its high, with energy inflation decreasing substantially and food inflation looking to be nearing its peak.

“Even if inflation is close to a peak, it will remain close to its current very high rates for several more months,” Tuvey said in a note.

“Sharp and disorderly falls in the lira remain a key risk,” he warned.

The transportation industry had the greatest yearly increase in consumer prices, increasing by 119.11 percent, while food and non-alcoholic beverage costs increased by 94.65 percent.

The economic consequences of Russia’s invasion of Ukraine, as well as the lira’s ongoing slide, have fueled inflation this year. Last year, the currency fell 44 percent versus the dollar, and it is down another 27 percent this year.

The lira was trading flat versus the dollar following the report, at 17.9560. In December, it fell to a record low of 18.4.

Annual inflation has now hit its highest level since September 1998, when Turkey was trying to halt a decade of persistently high inflation.

According to a recent Reuters survey, annual inflation is expected to fall to about 70% by the end of 2022, reducing from current levels as the base effects of last year’s price spike take impact.

The domestic producer price index increased 5.17 percent month on month in July, for a 144.61 percent annual increase.

According to the administration, inflation will decline as a consequence of its economic policy, which prioritizes low interest rates to encourage production and exports while aiming for a current account surplus.

Erdogan has said that he expects inflation to fall to “appropriate” levels by February-March of next year, while the central bank boosted its end-of-year projection to 60.4 percent from 42.8 percent before last Thursday.

According to the bank’s inflation report, the expected range of inflation will reach around 90% this fall before dropping.

Opposition politicians and economists have questioned the trustworthiness of TUIK numbers, which TUIK has denied. According to polls, Turks feel inflation is far greater than the official figures.

Source: Reuters

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