Turkish inflation has reached its highest level since Recep Tayyip Erdogan came to power nearly two decades ago, when the president’s controversial economic management sparked price spikes.
The country’s consumer price index rose 36 percent year-over-year in December, according to data released by Turkey’s statistics agency on Monday.
It is the highest increase in consumer prices since September 2002, when Turkey was rocked by a financial crisis that paved the way for a landslide election victory for Erdogan’s Justice and Development Party (AKP) in November of that year.
The number, a sharp rise from the previous month’s official inflation rate of 21 percent, comes after Erdogan ordered the central bank to cut interest rates repeatedly in recent months despite double-digit inflation.
His insistence that the bank has cut its key interest rate by a total of 5 percentage points to 14 percent since September has resulted in sharply negative real interest rates, causing investors to flee the Turkish lira and fueling inflation in a country that imported heavily Dependent on energy and goods.
This, in turn, has fueled growing public dissatisfaction with the rising cost of living and a decline in public opinion poll support for the AKP.
December’s inflation rate, which was above analysts’ consensus estimates of 30 percent, was driven by sharp spikes in transportation costs, which rose nearly 54 percent year-over-year, and food and beverage costs, which rose nearly 44 percent.
As a sign of the pain caused by the fall in the lira, which lost around 45 percent of its value against the dollar in 2021, the producer price index rose significantly more strongly by 80 percent year-on-year.
Ibrahim Aksoy, an analyst at HSBC in Istanbul, warned of a further spike in inflation in the coming months, forecasting it would hit around 42 percent in April and May.
The numbers were received with dismay by the country’s opposition parties. Durmus Yilmaz, a former central bank governor who now serves as a senior IYI official, said inflation was “the root cause” of the country’s economic problems and called for “an urgent stabilization program.”
Ali Babacan, a former ally of Erdogan who leads the opposition Deva party, said the real inflation rate was even higher than official figures, describing the country’s statistics agency as “the institute to fumble with.” He said the tariff is “nowhere near” the massive energy price hikes announced earlier this year, which resulted in electricity prices rising by as much as 125 percent for the most intense commercial consumers and about 50 percent for households.
Erdogan, a long-time opponent of high interest rates, rejects the common economic wisdom that an increase in borrowing costs helps to contain high inflation.
Despite the growing concern of the Turkish economy, he has continued to insist that lower interest rates will ultimately contribute to price stability as part of a new economic model aimed at boosting exports, investment and job creation.
Erdogan recognized the pain inflation is causing the public and last month vowed that his government will not allow workers to be “crushed” by price increases when he announced a 50 percent increase in the minimum wage in lira.
Economists warned that while a wage increase was necessary for the worst paid workers to protect them from rising cost of living, such a large increase in itself would be inflationary and price increases could spiral out of control.