Turkey’s inflation rate has risen to 73% with food and energy costs rising dramatically

Turkey’s May inflation rate rose 73.5% on an annual basis, its highest level in 23 years, as the country grapples with rising food and energy costs and President Recep Tayyip Erdogan’s unconventional long-term strategy on monetary policy.

The country’s statistics agency reported that food prices in the nation of 84 million people rose 91.6% year-on-year, highlighting the pain ordinary consumers are facing due to supply chain problems, rising energy costs and Russia’s war in Ukraine that are fueling global inflation. .

Turkey has enjoyed rapid growth for years, but Erdogan has for years refused to purposefully raise interest rates to cool the resulting inflation, calling himself the archenemy of interest rates.. The result was a lower Turkish lira and much less purchasing power for the average Turkish citizen.

Erdogan instructed the country’s central bank – from which analysts say it has no independence – to cut borrowing rates repeatedly last year even as inflation continued to rise. Central bank chiefs who had expressed opposition to this course of action were fired; By the spring of 2021, Turkey’s central bank had seen four different governors in the span of two years.

Turkey’s president has vowed to introduce a new economic model that will spark a boom in export wealth thanks to the cheaper lira and then tackle inflation by eliminating Turkey’s longstanding trade deficit. It didn’t, and now the exorbitant costs of energy imports that have to be paid in dollars — a lot of dollars, thanks to the weak lira — are putting severe strains on the economy.

Economic analysts expect that the inflation trajectory in Turkey will worsen.

Ehsan Khoman, Director of Emerging Markets Research for Europe, Middle East and Africa at MUFG Bank, wrote on Twitter after the numbers were released.

Speaking to CNBC, Khoman added that he expects inflation in Turkey to remain “north at 70% y/y until November due to a confluence of high commodity prices, rising domestic production costs and a sharp depreciation of the lira.”

“Turkey is back in the inflationary era of the 1990s. Erdogan seems to have lost his last credibility in the economy,” Holger Schapitz, financial editor of German daily Die Welt, wrote on Twitter. “Erdogan’s unconventional strategy to manage the country’s $790 billion economy has continued to backfire,” he wrote in another tweet.

The 73.5% figure for Turkey’s CPI is up from 70% in the previous month.