Turkish inflation surges beyond 60% as energy costs soar
Turkish inflation has surged beyond 60% for the first time this year, reaching an annual rate of 61.53% in September, according to data from the Turkish Statistical Institute (TÜİK). This alarming increase is primarily attributed to higher energy costs, which have complicated efforts to contain domestic demand despite significant interest rate hikes.
The September inflation data indicates a 4.75% month-on-month increase, reflecting the dwindling impact of summer tax hikes. This surge in prices, driven largely by the rising cost of food and services, has left Turkish citizens grappling with the economic challenges posed by soaring inflation.
Among the major expenditure groups, housing saw the least increase, with a modest 20.16% rise compared to the same month last year. Conversely, restaurants and hotels experienced the highest increase, soaring by 92.48% year-on-year in September.
In September 2023, the group with the smallest increase compared to the previous month was clothing and footwear, with only a 2.59% rise. In contrast, the group with the most significant increase compared to the previous month was education, skyrocketing by 30.27%.
Excluding raw food products, energy, alcoholic beverages, tobacco, and gold, the Consumer Price Index (CPI) experienced a 5.06% increase compared to the previous month, a staggering 54.66% rise since December of the previous year, and a remarkable 67.22% increase compared to the same month last year. The twelve-month average inflation rate stood at 57.75%.
However, independent researchers from the Inflation Research Group (ENAG) reported even higher figures, with monthly inflation surging by 6.24% in September and a nine-month increase rate of 95.33%.
To combat the persistently high inflation rates, the Turkish central bank has initiated a series of substantial consecutive interest rate hikes, aiming to curb domestic demand, which has been a primary driver of inflation over the past two years. Since June, Turkey's new economic team has more than tripled the key interest rate, bringing it to a substantial 30%.
Despite these efforts, there remains an uncontrollable upside risk that could further exacerbate inflation. International crude benchmark Brent has surged by nearly 30% since June, approaching $100 per barrel. Given Turkey's significant reliance on energy imports, this surge has added additional pressure to inflation. The central bank currently estimates an annual average oil price of $79.4.
The rising energy costs have also put pressure on the Turkish lira, which the country is working to stabilize as part of its broader battle against inflation. Analysts from Bank of America Corp. predict that the Turkish currency may weaken to 30 per dollar in the last quarter of 2023.
The Turkish central bank's rate-setting committee is scheduled to convene on October 26th, with Governor Hafize Gaye Erkan expected to announce the bank's revised year-end inflation estimates a week later.