Turkey’s inflation hits almost 80% as Erdogan insists on low-rate policy

Turkey’s annual consumer inflation climbed to 79.6% in July, official data showed Wednesday, and the uptick appears months away from topping out, with President Recep Tayyip Erdogan sticking to a controversial policy against hiking interest rates. 

Consumer prices rose 2.37% in July, marking the lowest month-to-month increase since January thanks to a relative slowing in food inflation, a drop in fuel prices and the Turkish lira’s relatively small losses against hard currencies. Nevertheless, annual inflation appears on course to overshoot the central bank’s year-end projection of 60.4%, revised upward from 42.8% just last week.

External factors, chief among them the sharp increase in energy prices after Russia’s invasion of Ukraine in February, have contributed to Turkey’s economic woes, but Erdogan’s low-rate policy is widely seen as the main culprit of the country’s inflation storm since last year. At the behest of Erdogan, who holds the unorthodox view that higher rates cause higher inflation, the central bank has kept its policy rate at 14% since mid-December, when it delivered the last of four consecutive rate cuts totaling 500 basis points despite inflation standing around 20% at the time. In other words, the bank has discarded its key weapon against inflation, while its counterparts in the United States, the euro zone and elsewhere have been hiking rates to tackle the global rise of prices.

The runaway inflation has further hit the embattled lira, prompting saving holders to seek refuge in the dollar. The price of the greenback averaged 17.4 liras last month, a 102% increase from 8.5 liras in July 2021.