Turkey’s annual inflation soars to highest since 1998

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Turkey’s annual inflation rate jumped to a 24-year high of 73.5 percent in May, fueled by the war in Ukraine, rising energy prices and a tumbling lira - though the figure was slightly lower than economists had feared.

Inflation has surged since last autumn, when the lira slumped after the central bank launched a 500 basis-point easing cycle sought by President Recep Tayyip Erdogan.

The latest figure surpassed the 73.2 percent touched in 2002 and is the highest since October 1998, when annual inflation was 76.6 percent and Turkey was battling to end a decade of chronically high inflation.

Nevertheless, the consensus forecast was for annual inflation to rise to 76.55 percent.

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Month-on-month consumer prices rose 2.98 percent, the Turkish Statistical Institute said on Friday, compared to a Reuters poll forecast of 4.8 percent.

Transport and food costs have soared by 108 percent and 92 percent respectively over the last year, reflecting a deepening economic crisis for Turks struggling to afford basic goods.

The domestic producer price index climbed 8.76 percent month-on-month in May for an annual rise of 132.16 percent, reflecting how a 20 percent drop this year in the currency has sent import costs soaring.

Single digit?

The lira weakened 0.25 percent to 16.5050 against the dollar touching its weakest since December. The local currency tumbled 44 percent in 2021 and another 20 percent this year.

In April, the central bank forecast annual inflation would peak by June before declining to near 43 percent by year-end and single digits by end-2024.

The government has previously said inflation will fall to single digits next year under its new economic program - prioritizing low interest rates to boost production and exports - aimed at achieving a current account surplus.

However, data on Thursday showed the trade deficit widened 157 percent year-on-year in May to $10.7 billion.

Economists see inflation remaining high for the rest of 2022 due to the war, weakening lira and the central bank’s reluctance to raise rates. The median estimate for inflation at year-end stands at 63 percent, up from 52 percent in last month’s poll.

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