Turkish Minute

Turkey inflation above 16 percent in test for new central bank chief

People wearing protective masks shop at a local market, amid the coronavirus disease (COVID-19) outbreak in Ankara on February 22, 2021. Ankara residents shop in the open markets although more and more Turks are finding it difficult to cope with growing poverty and the sometimes daily rise in prices. Adem ALTAN / AFP

Turkey’s annual inflation climbed above 16 percent in March for the first time since mid-2019, data showed on Monday, piling pressure on new central bank governor Şahap Kavcıoğlu to maintain tight policy after his surprise appointment, Reuters reported.

Consumer prices were up 16.19 percent year-on-year, higher than 16.11percent in a Reuters poll and 15.61 percent in February. Inflation remains well above a 5 percent official target and has been in double digits for most of the past four years.

Month-on-month CPI inflation was 1.08 percent, the Turkish Statistical Institute said, compared to a Reuters poll forecast of 1.04 percent.

The former central bank governor, Naci Ağbal, had raised the policy rate to 19 percent from 10.25 percent. But he was ousted on March 20 – after only four months on the job and two days after a last rate hike – prompting a 12 percent drop in the lira to near record lows.

President Recep Tayyip Erdoğan has abruptly ousted four bank chiefs in less than two years, hurting Turkey’s monetary credibility and contributing to the currency’s long-term decline, which in turn has driven up overall inflation via imports.

Kavcıoğlu has in the past criticized tight policy, including making the unorthodox claim shared by Erdoğan that high rates cause inflation. Yet he has told investors and bankers in recent weeks rates must remain high due to high inflation.

The producer price index rose 4.13 percent month-on-month in March for an annual rise of 31.2 percent, the data showed.

The monthly CPI price rise was underpinned by demand in the health, education and hospitality groups, including restaurants, after coronavirus measures were eased.

Annual rises were driven by higher energy and import prices which raised transportation-related prices by nearly 25 percent.

According to a February forecast, the central bank expected a maximum of 17 percent inflation in March and a bit more in April. Analysts predict it will rise through April, when Goldman Sachs expects it to peak at 18 percent.

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