Inflation in Turkey hit 2-year high at 17.5 per cent

Turkish annual inflation jumped to a two-year high of 17.53 per cent in June, exceeding a forecast of 17 per cent and continuing an extended rise after a brief dip, potentially delaying any interest rate cuts to later in the year.

The month-on-month consumer price reading was also higher than expected, up 1.94 per cent according to the Turkish Statistical Institute, compared with a Reuters poll forecast of 1.50 per cent.

Inflation, which has remained in double digits for most of the last four years, has been held up by lira depreciation, depleted monetary credibility and a burst of demand as the economy emerges from the coronavirus pandemic.

The depreciation accelerated when President Tayyip Erdogan sacked a hawkish central bank governor in March, raising worries of earlier-than-expected cuts to the 19 per cent policy interest rate.

Analysts said the hot inflation data eased those worries. The lira was virtually unchanged at 8.6825 against the dollar at 0801 GMT, compared with Friday’s close of 8.7.

“It very much looks like the central bank’s promise to keep real rates positive will be tested with the headline rate very likely to push through” the 19 per cent policy rate, said Tim Ash of BlueBay Asset Management.

In May, inflation unexpectedly dropped to 16.59 per cent when price hikes were delayed due to a COVID-19 lockdown. It has otherwise been on an uptrend since last September despite the start of a monetary tightening cycle that month.