Turkish inflation has reached almost 80 per cent amid analysts’ warnings that the country is at risk of becoming trapped in a spiral of rising prices and wages, Financial Times reports.
Consumer prices reportedly rose 78.6 per cent year on year in June as President Recep Tayyip Erdoğan’s unconventional monetary policy and the war in Ukraine’s disruption to food and energy imports took a heavy toll.
Though the rate was slightly below analysts’ consensus forecast of 80 per cent, it was still the biggest annual increase since 1998. President Erdoğan - rejecting the widely accepted view among economists that raising interest rates curbs inflation - has ordered the central bank to keep its benchmark borrowing rate far below the level of inflation.
As a result, the lira has lost 48 per cent of its value against the dollar during the past 12 months. The currency plunge has been a major cause of price rises in a country that is reliant on imports, especially energy. The effects have reportedly been compounded by a surge in the price of energy and other commodities in the wake of Russian President Vladimir Putin’s invasion of Ukraine.
The latest inflation data on June 4 - up from 73.5 per cent in May - follow Turkish authorities last week announcing a 30 per cent increase in the minimum wage just six months after raising the basic rate of pay by 50 per cent. Opposition parties and trade unions accuse the government of manipulating the inflation figures. They say the increase was sorely needed to stave off poverty for millions of households that are struggling with soaring food prices.
President Erdoğan, whose ruling party’s support has fallen to historic lows due, in part, to the economic turmoil, also backed the rise while insisting that inflation would reach “reasonable levels” at the start of 2023.
However, economists have warned that the rise in the minimum rate of pay - affecting an estimated 40 per cent of the official workforce with a knock-on effect on other sectors - would itself contribute to continued high inflation in the months ahead.
Goldman Sachs reportedly lifted its year-end inflation forecast recently, from 65 per cent to 75 per cent, warning that the latest rise in the minimum wage risked leading to “a price-wage spiral”. The increase, combined with other factors including the likelihood of further depreciation of the Turkish lira, meant that “underlying inflation pressures in Turkey remain highly elevated,” it said.
Source: Financial Times
(Quotes via original reporting)
Turkish inflation has reached almost 80 per cent amid analysts’ warnings that the country is at risk of becoming trapped in a spiral of rising prices and wages, Financial Times reports.
Consumer prices reportedly rose 78.6 per cent year on year in June as President Recep Tayyip Erdoğan’s unconventional monetary policy and the war in Ukraine’s disruption to food and energy imports took a heavy toll.
Though the rate was slightly below analysts’ consensus forecast of 80 per cent, it was still the biggest annual increase since 1998. President Erdoğan - rejecting the widely accepted view among economists that raising interest rates curbs inflation - has ordered the central bank to keep its benchmark borrowing rate far below the level of inflation.
As a result, the lira has lost 48 per cent of its value against the dollar during the past 12 months. The currency plunge has been a major cause of price rises in a country that is reliant on imports, especially energy. The effects have reportedly been compounded by a surge in the price of energy and other commodities in the wake of Russian President Vladimir Putin’s invasion of Ukraine.
The latest inflation data on June 4 - up from 73.5 per cent in May - follow Turkish authorities last week announcing a 30 per cent increase in the minimum wage just six months after raising the basic rate of pay by 50 per cent. Opposition parties and trade unions accuse the government of manipulating the inflation figures. They say the increase was sorely needed to stave off poverty for millions of households that are struggling with soaring food prices.
President Erdoğan, whose ruling party’s support has fallen to historic lows due, in part, to the economic turmoil, also backed the rise while insisting that inflation would reach “reasonable levels” at the start of 2023.
However, economists have warned that the rise in the minimum rate of pay - affecting an estimated 40 per cent of the official workforce with a knock-on effect on other sectors - would itself contribute to continued high inflation in the months ahead.
Goldman Sachs reportedly lifted its year-end inflation forecast recently, from 65 per cent to 75 per cent, warning that the latest rise in the minimum wage risked leading to “a price-wage spiral”. The increase, combined with other factors including the likelihood of further depreciation of the Turkish lira, meant that “underlying inflation pressures in Turkey remain highly elevated,” it said.
Source: Financial Times
(Quotes via original reporting)