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Turkey's inflation hits 36% amid financial turmoil

January 4, 2022 11:54 am

Turkey’s annual inflation rate has soared to a 19-year high, underlining the country’s financial turmoil and alarm over its president’s policies.

Prices hit more than 36% December as the cost of transport, food and other staples ate into household budgets.

Most central banks raise interest rates to help cool inflation but Turkey has gone the other way.

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It has meant a collapse in the value of the lira, as Tayyip Erdogan prioritises exports over currency stability.

The lira shed 44% of its value against the dollar last year, and fell another 5% on Monday before recovering to trade flat.

The drop in the lira has made the price of inflation-fuelling imports more expensive, ranging from energy to many of the raw materials Turkey’s manufacturers turn into exports.

Mr Erdogan has described interest rates as “the mother and father of all evil,” and has used more unorthodox policy to try to dampen prices including intervening in foreign exchange markets.

In a speech on Monday he said Turkey was “going through a transformation in economy and rising to the next league”.

He said the nation is “reaping the fruits especially in exports of our country’s efforts and hard work in the past 20 years to bolster our foreign trade”.
One economist forecast that inflation could reach as high as 50% by the spring unless the direction of monetary policy was reversed.

“Rates should be immediately and aggressively hiked because this is urgent,” said Ozlem Derici Sengul, founding partner at Spinn Consulting, in Istanbul. But she accepted the central bank was unlikely to act.

Mr Erdogan overhauled the central bank’s leadership last year. The bank has slashed rates to 14% from 19% since September.

The subsequent accelerating surge in prices and drop in the lira have upended household and company budgets.

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