Turkey experienced its smallest deceleration in consumer prices since a slowdown that began in November, as the lira’s ongoing decline made imports more expensive. According to official data released on Wednesday, inflation reached 38.2% in June compared to the previous year, slightly below expectations and down from May’s figure of 39.6%.
Despite the lira’s significant depreciation, the country managed to maintain some level of disinflation momentum. However, the weakening currency is now causing price pressures, coinciding with the government’s implementation of measures such as an interim hike of 34% in the minimum wage, as well as discussions about increasing civil servant pay and pensions, Bloomberg said on Wednesday.
Core inflation, which excludes volatile items, witnessed an annual increase of 47.3%, up from 46.6% the previous month, signaling that price pressures remain high.
Since President Recep Tayyip Erdogan’s reelection victory in May and his subsequent overhaul of the economy team, the lira has lost approximately 25% of its value against the dollar.
Financial analysts suggest that achieving price stability will be challenging due to the dismantling of years of complex regulations and fringe policies that previously helped maintain the lira’s stability by depleting central bank reserves. This responsibility now lies with two former Wall Street bankers who are leading the country’s economic affairs.
Bloomberg Economics has stated that they anticipate the inflation rate to rise further in the future as a result of government policies and the sharp depreciation of the lira. They project that the inflation rate could reach 47% by the end of the year, even after the central bank implemented a policy shift by increasing borrowing costs.
This looming threat of an inflation spiral places additional pressure on Finance Minister Mehmet Simsek and central bank Governor Hafize Gaye Erkan, who recently assumed their roles. The current approach to monetary policy signals a gradual return to a more conventional approach as support for the lira is reduced and interest rates are raised for the first time in over two years.
Gerçek News