A man sells slippers in Eminonu May 5, 2022 in Istanbul, Turkey. The country has been growing rapidly for years, but President Erdogan has for years refused to raise interest rates in a meaningful way to cool inflation. The result has been a falling Turkish lira and far less purchasing power for the average Turk.
Burak Kara | Getty Images News | Getty pictures
Turkey̵[ads1]7;s inflation for May rose sharply to 73.5% year-on-year, the highest in 23 years as the country struggles with sky-high food and energy costs and President Recep Tayyip Erdogan’s long-standing unorthodox monetary policy strategy.
The country’s food prices of 84 million rose by 91.6% year-on-year, the country’s statistics agency reported, giving a sharp view of the pain that ordinary consumers face when supply chain problems, rising energy costs and Russia’s war in Ukraine lead to global inflation.
Turkey has been growing rapidly for years, but Erdogan has for years refused to raise interest rates meaningfully to cool the resulting inflation, and has described himself as a sworn enemy of interest rates. The result has been a falling Turkish lira and far less purchasing power for the average Turk.
Erdogan instructed the country’s central bank – which analysts say has no independence from him – to repeatedly cut lending rates last year even as inflation continued to rise. Central bank governors who expressed opposition to this action were fired; by the spring of 2021, Turkey’s central bank had seen four different governors in two years.
Turkish lira and US dollars
Result Kaboglu | NurPhoto via Getty Images
The Turkish president promised to deliver a new economic model that would bring a boom in export wealth thanks to a cheaper lira, and then tackle inflation by getting rid of Turkey’s long-standing trade deficit. That has not happened, and now sky-high costs for energy imports that have to be paid in dollars – much more dollars, thanks to the lira’s weakness – are putting intense pressure on the economy.
Economic analysts expect that the path to Turkey’s inflation will only get worse.
“The laser focus on heterodox measures in relation to conventional monetary policy will hardly solve the inflation challenge, and we expect that levels will break by 80% y / y in Q3-22,” Ehsan Khoman, Director of Emerging Markets for Europe, Middle East and Africa at MUFG Bank , wrote on Twitter after the release of numbers.
In an interview with CNBC, Khoman added that he expects Turkey’s inflation to “stay north of 70% y / y until November due to a confluence of high commodity prices, rising domestic production costs and a sharp fall in the lira.”
“Turkey back in the inflation age of the 1990s. It looks like Erdogan has lost his last economic credibility,” Holger Zschapitz, finance editor of the German newspaper Die Welt, wrote on Twitter. “Erdogan’s unorthodox strategy of managing the country’s $ 790 billion economy continued to falter,” he wrote in another tweet.
The figure of 73.5% for Turkey’s consumer price index is up from 70% the month before.