The inflation rate in Turkey continues to rise, indicating the need for further increases in interest rates as the country grapples with rampant price increases. According to data from the country’s statistics agency, the consumer price index increased by 61.5% in September, up from 58.9% the previous month. This aligns with economists’ expectations, as per a FactSet poll.
In an attempt to control inflation, the Turkish central bank has implemented a series of interest rate hikes in recent months. However, the impact of these measures may take some time to materialize. Under the new leadership of Governor Hafize Gaye Erkan, a former executive at First Republic Bank and Goldman Sachs, the central bank raised its key rate to 30% in September. Erkan is known for favoring a more orthodox monetary policy.
The surge in food prices contributed significantly to Turkey’s inflation in September, rising by 75.1% compared to the previous year. Additionally, there was a significant increase in services inflation, particularly in prices for hotels, cafes, and restaurants, which soared by over 92%. This suggests that Turkey’s popularity as a tourist destination is exacerbating its inflationary challenges.
Turkish Inflation Rates Show Signs of Stabilization
Prices for various goods and services in Turkey have experienced a moderate increase, with housing prices rising at a more restrained pace of 20%. The clothing and footwear sector also saw price increases, albeit below the average rate. This relatively small overall increase indicates a potential end to the price spikes that have plagued the country. William Jackson, the chief emerging markets economist at Capital Economics, suggests that the recent commitment of the central bank to combatting inflation, along with political support, may contribute to this positive development.
However, given that inflation has already surpassed the bank’s projected year-end rate and shows no signs of abating, Bartosz Sawicki, a market analyst at Warsaw-based fintech consultancy Conotoxia, believes that further tightening of monetary policy will be necessary. Sawicki cites re-accelerating inflation, unfavorable balance of payments dynamics, and a lack of central bank credibility as hindrances to stabilizing the lira through interventions and foreign-currency controls.
Despite these challenges, it is expected that the central bank will increase interest rates by an additional 10 points before the year ends.