Turkey inflation slows the most since 1995 ahead of election splurge

Collected Image
Turkish inflation decelerated at its steepest pace in more than a quarter of a century, a slowdown that may be at risk from a public spending splurge planned ahead of elections.

Consumer prices rose by an annual 64.3 percent in December, lower than the 84.4 percent increase in the previous month, according to data released by state statistics agency TurkStat on Tuesday.

The median forecast of economists surveyed by Bloomberg was 66.7 percent. Much of the slowdown reflects a base effect from fast price increases in the last month of 2021, when the lira lost nearly a fifth of its value within days, making imports more expensive.

Subdued credit growth and a relatively stable currency since then have led policymakers to expect inflation at 22.3 per cent by the end of this year.

Increases in the cost of food, energy and factory-gate prices all slowed to below 100 per cent. That is signalling “a visible downward trend” that allowed the government to meet targets in its medium-term programme, said Treasury and Finance Minister Nureddin Nebati.

But the improvement is set to lose momentum as the government prepares to ramp up spending before presidential elections scheduled for June.

On a monthly basis, inflation rose 1.18 per cent in December. Core prices, which exclude volatile items such as food and energy, increased 51.93 per cent.

With that stickiness in prices, many economists expect inflation to end the year at 44 per cent, more than three times the average of 15 peers tracked by Bloomberg across Europe, the Middle East and Africa.

“Turkey’s rampant inflation has taken a large step down due to high base effects that will keep the rate receding through 2023,” Selva Bahar Baziki of Bloomberg Economics said.

“Even with expectations for a sharp fall in the year-on-year rate, December inflation still surprised to the downside at 64.3 per cent. “We expect the year-end inflation rate to remain above 30 per cent — six times the central bank’s target rate of 5 per cent.

“Still, we do not see the central bank combating high price gains with policy rate hikes until after this year’s elections — once the vote is out of the way, the build-up of risk in the economy is [expected] to call for a policy reversal.”

Turkish President Recep Tayyip Erdogan last month promised early retirement for millions of workers in a pre-election pledge that is expected to cost the Turkish Treasury about $13 billion a year.

The government also announced a 55 per cent increase in the official minimum wage and is preparing to inject $3.3 billion into state banks to speed up cheap lending to help businesses to cope with rising costs.

The Turkish leader sees lower borrowing costs as key to his ambitions to boost investment and job creation before the elections.

Under his explicit guidance, Governor Sahap Kavcioglu lowered the central bank’s key interest rate by 500 basis points to 9 per cent in November.

While delivering four consecutive rate cuts, Mr Kavcioglu blamed rampant inflation on high energy prices and a weak currency that drove up import costs.

The central bank chief will present his next quarterly report on the inflation outlook on January 26 and will write an open letter to the government explaining why he missed the official target of 5 per cent.

“We still need to take into account the planned surge in public spending before the elections, which may feed periodical price increases,” Istanbul-based Tera Yatirim’s chief economist Enver Erkan said. “Overall demand and a desire by companies to pass on rising costs will [affect] future price hikes.”
Source: https://www.thenationalnews.com

Share this news on: