Consumer prices rose 78.6% last month compared to June 2021, driven by rising food and beverage and transportation costs. Food prices have nearly doubled in one year, while the cost of transportation rose 123%, according to data from the Turkish Statistics Institute.
It is another sad milestone for a country that has suffered from rampant inflation in recent months, and whose currency has lost more than 20% of its value against the US dollar since the beginning of the year.
Turkey’s economy is exposed to the same forces of global inflation as other countries, but the unorthodox economic policies of President Recep Tayyip Erdogan have inflamed the crisis, as has the crash of the lira, which causes imports are much more expensive.
In September, Erdogan abandoned the rulebook and told Turkey’s central bank to start lowering interest rates as prices rose, rather than raising them.
At a time when the world’s major central banks are raising the cost of lending to cool demand with the aim of controlling inflation, Turkey is doing exactly the opposite. Interest rates have remained at 14% since December.
Erdogan has defended his monetary policy, arguing that lowering rates will bring down inflation and increase production and exports. He has blamed his country’s economic problems on foreign interference.
Turkey’s economy minister Nureddin Nebati said in a tweet on Monday that “the persistence of high rises in world prices for raw materials, especially energy and agricultural products” had fueled inflation in June.
He said the government was taking steps to protect people from rising prices, even by reducing sales taxes and offering subsidies.
Last week, Erdogan announced that his government would increase the minimum wage by 30% from this month, just six months after raising it by 50%, to help workers with rising labor costs. life.
But the move could push the country even further into a dangerous wage-price spiral that would make things even worse.
S&P Global Ratings said in a report last week that inflation combined with the weak value of the Turkish lira will continue to affect consumer spending. Annual inflation is expected to remain above 70% by the end of the year and above 20% until at least mid-2023.
“The recession in Russia and Ukraine, as well as the slowdown in growth in the eurozone and the UK will weigh on exports, which have been Turkey’s major growth driver until recently,” the report says.
A rise in international tourism will bring some relief this summer, according to the report, boosting foreign exchange earnings. This could withstand the lyre.
– Julia Horowitz, Gul Tuysuz and Jomana Karadsheh contributed to the report.