Turkyish inflation set to peak above 80%
ISTANBUL: Turkyish inflation is on track to peak above 80% soon, though the risk is that it will leave price expectations entrenched at elevated levels for years to come.
For much of the year, Turkiye has been resilient to the fastest inflation in over two decades despite inaction by the central bank.
Now, a few corners of the Us$820bil (RM3.7 trillion) economy are seeing pressures moderate sharply, with August rates of input costs and selling price inflation in manufacturing at the weakest in over a year.
According to the median forecast of economists polled by Bloomberg, August inflation was 2%, the lowest increase since September 2021.
Another poll showed annual inflation likely climbed to just over 81%, up from nearly 80% a month earlier, another poll showed.
“Underlying trends signal increasing inflation inertia as core indicators climbed in July to the highest annual rate in data available,”
said Bloomberg Economics economist Selva Bahar Baziki.
“Looking ahead, we expect inflation to increase further in September before starting to retreat and ending the year higher than the central bank’s projection.”
Inflation in Turkiye largely held steady in the single digits from 2004 to 2016.
But policies that prioritised economic growth and cheap lending at the expense of the lira and price stability eventually touched off rounds of inflation that culminated in this year’s blowout.
The long-term damage from the crisis, however, may be in the way it warps price expectations.
An August survey by the central bank found that respondents anticipate inflation
to be at over 24% as far out as two years into the future.
Turkiye has the world’s deepest negative interest rates when adjusted for inflation.
The lira is down about 27% against the US dollar this year, the worst performer in emerging markets.
Even stripping out volatile items like food and energy, Turkyish inflation has been surging, with the core index reaching` close to 62% in July, a record high in data going back to 2004, and forecast to rise much higher still.
Retail inflation in Turkiye’s most affluent city, Istanbul, last month rose to almost 100% from a year earlier.
Another challenge is the threat of an economic slowdown ahead.
While major banks ranging from Goldman Sachs Group Inc to Morgan Stanley have revised their 2022 forecast for Turkiye following faster-than-expected growth in the second quarter, the risk of a European recession is one of the factors that could slow the economy for the rest of the year.
Worried by “some loss of momentum,” the central bank already slashed its benchmark rate last month by 100 basis points to 13%.
Economic confidence has also been declining for much of the year.
Consumer prices could come under pressure again if authorities unleash more stimulus ahead of elections less than a year from now.
For now, President Recep Tayyip Erdogan is asking for “some patience and more support,” saying last week that inflation will start to fall at the start of the new year.