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Turkish inflation again accelerates in September

Turkish inflation again accelerates in September

The annual inflation rate in Turkey rose for the second month in a row and is now over 11 percent, well above the government’s 5-percent target. President Recep Tayyip Erdogan blames high interest rates.
Turkey’s annualized inflation rate rose to 11.2 percent in September, the state-run statistics agency Turkstat reported on Tuesday, with the costs of education and transportation seeing the biggest monthly gains.
The overall increase was slightly below market expectations, but shows a return to higher costs, after a period earlier this year in which the inflation rate dipped into single digits.
However, there was a significant increase in core inflation, which hit its highest levels since February 2004, according to QNB-Finansbank.
“What is even more concerning is that the upward trend will likely extend to the upcoming months,” according to a note from the bank, which said inflation may hit 11.5 percent by the end of the year.
Turkey has seen strong economic expansion this year, in part due to rising exports, fiscal stimulus and credit growth, which has also led to consumer-side demand increases, putting pressure on inflation.
Passing the blame
Despite growth in exports, the trade deficit has also continued to widen. The Turkish lira is again under pressure compared to the dollar and the euro. Last month, the central bank raised its inflation forecast for the end of the year to 9.72 percent and kept interest rates on hold.
But Turkish President Recep Tayyip Erdogan is having none of it and is in a belligerent mood. On Tuesday he said that the country has not been able to lower inflation because of high interest rates which were at levels that discouraged investment; once again reiterating his unorthodox view of the link between interest rates and inflation.
Conventional economic wisdom suggests that inflation should go down as interest rates are raised since this softens demand and weakens the money supply growth in an economy, and many central banks have used this policy tool in the past.
“We still have not been able lower inflation and this is due to interest rates,” He said in a speech to deputies from his ruling AK Party after Turkstat’s data was released.
“If we cannot secure the fall in interest rates, if we cannot succeed here, then beware — plenty of calamities await us. We must definitely deal with this,” he added.
Deutsche Welle

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