Reuters / Istanbul
Turkish inflation rose above 15% in February to levels it last hit in mid-2019, according to data yesterday that could prompt the central bank to raise the highest interest rates of any major economy even higher.
Consumer prices rose 15.61% year-on-year and 0.91% from January, the Turkish Statistical Institute said.
Both figures were higher than forecasts of 0.7% and 15.39%, respectively, in a Reuters poll.
Stuck in double digits for most of the last four years, inflation has edged higher for four straight months despite the central bank, under new governor Naci Agbal, hiking its key rate to 17% from 10.25% since November.
That has given Turkey the tightest monetary policy of any major developed or emerging market economy, slowing an economic rebound from the pandemic.
Rate cuts are expected later in the year.
But some analysts now predict a hike this month to address both inflation and a sharp drop last week in Turkey’s lira currency which tends to raise import prices, notably for energy, of which Turkey is a significant importer.
James Lord, strategist at Morgan Stanley, anticipates a 100-point hike in March. “That is not something the market is really expecting and if they deliver that the lira would probably stabilise,” he said.
The bank’s target rate for inflation is 5%, and Agbal has promised to raise rates again if needed to ensure inflation drops to 9.4% as the bank forecasts by year end.
But President Tayyip Erdogan is a self-described “enemy” of interest rates and regularly calls for cuts.
The monthly price rise was driven by the health and food groups, which rose 3% and 2.57% respectively.
Annual transportation prices jumped more than 22%, reflecting costly energy imports and volatility in the lira currency.
The producer price index rose 1.22% month-on-month in February for an annual rise of 27.09%, the data showed.
The central bank has said newly adjusted weightings in the CPI basket should push inflation higher by 0.5 points by April.
Economists expect inflation to then begin falling, with a Reuters poll year-end estimate of 10.9%. Ozlem Derici Sengul, founding partner of Spinn Consulting in Istanbul, said inflation will likely drift above 16% or even higher by April. “This might prompt the central bank to take an action to curb inflation expectations,” she said.
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