Turkish inflation may hit 90 percent, ING says

Turkey’s consumer price inflation may climb to 90 percent later this year, extending the highest levels since the crisis-hit 1990s, Dutch financial services company ING Group said.

Inflation in the country accelerated to an annual 79.6 percent in July from 78.6 percent in June, according to official data published on Wednesday.

“Going forward, we expect inflation to peak in the 85-90% range in October, before a decline to around 70% at year-end,” ING chief economist for Turkey Muhammet Mercan said in a report. “But the risks lie to the upside given the deterioration in pricing behaviour, the impact of exchange rate developments and higher trend inflation. Currency moves will remain key for the inflation outlook.”

Turkey’s lira has lost more than a quarter of its value this year, pushing up the price of imported goods and materials. The currency’s losses have come amid a sharp global uptick in inflation, driven by higher commodity prices and supply constraints, exacerbating Turkish price pressures. The lira dropped by 44 percent in 2021 after the central bank cut interest rates despite an uptick in inflation.

“Key factors behind the ongoing rise in inflation remain the pass-through from currency weakness amid a more accommodative monetary stance as well as worsening inflation expectations and external factors, which have weighed on import prices,” Mercan said.

“The outlook once again confirms the need for a correction in the path of monetary policy, in our view,” he said.

ING's prediction almost matched that of Goldman Sachs, which sees inflation of around 90 percent in October or November.

Mercan pointed out that Turkish month-on-month inflation of 2.37 percent for July was the slowest increase this year.

The Turkish lira was trading down 0.2 percent at 17.95 per dollar on Thursday.

Most Turks are suffering a slump in their standard of living as prices surge. Many have lost confidence in official data, according to opinion polls. The difference between the official figures and the numbers provided by other sources has widened markedly in recent months.

On Monday, a business group in Istanbul reported a 99.1 percent annual increase in the cost of living in Turkey’s largest city compared with 94.2 percent in June. It was the widest margin on record between Istanbul inflation and the nationwide data. ENAG Group, made up of academics claiming to use virtually the same method and basket of goods to calculate inflation as the government, said on Wednesday that annual inflation accelerated to 176 percent.

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