Inflation surged to nearly 26 per cent

TURKISH inflation surged to nearly 25 per cent in September from a year earlier, official data showed on Wednesday, hitting its highest in 15 years and sharpening focus on whether the central bank will be able to deliver another hefty rate hike.

The size of the increase [prices jumped by 6.3 per cent from a month earlier] far outpaced expectations and underscored the deep impact of a currency crisis on the economy and consumers.

“The central bank will need to react to this,” said Inan Demir, senior emerging markets economist at Nomura.

“This is not something that could be ignored. They will have to hike [rates] at their next meeting.”

It remains to be seen whether Mr Erdoğan will brook another increase in borrowing costs. The president, a self-described “enemy of interest rates”, has called for lower rates to keep the economy growing.

His repeated criticism of borrowing costs (after last month’s hike he said his patience with interest rates “had limits”) has undermined confidence in the central bank and is at the root of the lira’s slide.

Inflation rose to 24.52 per cent in September from a year earlier, the data from the Turkish Statistical Institute showed. In August, it rose 17.9 per cent year-on-year.

In one month, the cost of food and non-alcoholic drinks in Turkey rose more than 6 per cent and transportation surged more than 9 per cent, the data showed.

Producer prices, a leading indicator of price change in the economy, soared more than 46 per cent from last year.

In a decade-and-a-half in power, Mr Erdoğan and his government have built bridges, power plants and hospitals and improved the lives of millions of lower-income Turks.

Early on, he won plaudits from investors for taming triple-digits inflation.

But economists say the boom years focused more on consumption rather than productivity and that Turkey built shopping malls when it should have been investing more in factories. The lira sell-off has also put focus on the potential for a crisis at banks.

Finance Minister Berat Albayrak, Mr Erdoğan’s son-in-law, said Turkey will announce new steps against inflation. Mr Erdoğan has called on Turks to report unusual price hikes in stores.