Turkey’s official inflation rate hit a 23-year high last month as President Recep Tayyip Erdoğan’s unorthodox strategy for managing the country’s $790 billion economy continued to backfire.
The consumer price index rose 73.5% year on year in May, according to data from the country’s statistical agency, the highest level since October 1998, when Turkey was reeling from a period marked by unstable coalition governments and economic turbulence.
Food prices, which have become a growing source of discontent among the Turkish public, rose 91.6% year-on-year.
Erdoğan, a staunch opponent of high interest rates, had ordered the central bank to repeatedly cut borrowing costs in the final months of last year, despite rising inflation.
The president said he was embarking on a new economic model that would harness a cheap lira and an export boom to reduce inflation by eliminating the country’s long-running trade deficit.
Even before the war in Ukraine, critics had described the plan as a high-risk economic “experiment” that risked crashing the value of the Turkish lira and triggering runaway inflation.
The Turkish currency fell slightly after Friday’s inflation data, weakening past 16.5 TL for the US dollar and taking its fall for 2022 to almost 20%. The lira fell by 44% in 2021.
Russia’s invasion of Ukraine has increased the challenges for Turkey’s economy, as rising global energy prices have pushed up the cost of the country’s already large energy import bill and further fueled inflation.
While Turkey has seen rapid economic growth thanks to an ultra-loose monetary policy, soaring living costs have contributed to an erosion of popular support for Erdoğan ahead of presidential and parliamentary elections scheduled for June next year. .
Last month, Erdoğan said those who linked interest rates to inflation were either “illiterates or traitors”.
Growth topped 11% last year, but showed signs of slowing as runaway inflation and a weak lira took their toll.
Gross domestic product rose 1.2% on a quarterly basis between January and March this year, compared to 1.5% in the last quarter of 2021, according to data released earlier this week.
Goldman Sachs analysts said price increases and their damaging impact on consumer demand will “limit” growth in the coming months.
They added: “A strong tourist season and the positive impact of further pound depreciation on exports can only partially counteract the dampening effects of excessively high inflation and adverse global forces.
“We maintain our GDP growth forecast of 3.5% year-on-year for 2022, but note that we now see a wider range of uncertainty around this estimate.”