The collapse of the Turkish lira fueled the price increase. President Recep Tayyip Erdogan insists on an unorthodox monetary policy, with a reduction in rates
Inflation in Turkey crossed the 80% threshold in August, reaching 80.21% year-on-year, compared to 79.6% in July, a record level since 1998, according to official data published on Monday.
The increase in prices is largely explained by the collapse of the Turkish lira, which in one year lost 55% of its value against the dollar.
Contrary to classical economic theory, President Recep Tayyip Erdogan believes that high interest rates fuel inflation. In that sense, the Turkish central bank surprised everyone in mid-August by lowering its main rate from 14% to 13%.
An unorthodox monetary policy, which has led to a fall in the value of the lira and pushed prices up.
“The biggest problem we are facing right now is the cost of living,” acknowledged the Turkish head of state on Tuesday, who however refuses to change his monetary policy nine and a half months before the next presidential election.
Month-on-month, consumer prices rose 1.46%, according to the Turkish Statistical Institute, versus a Reuters forecast of 2.0%. The annual inflation forecast was 81.22%.
The opposition and many economists also accuse the national statistics office of grossly underestimating the rise in prices.
The Inflation Research Group (Enag, for its acronym in Turkish), made up of independent economists, said on Monday that inflation was actually 181.4% year-on-year in August. The national producer price index rose 2.41% month-on-month in August, with an annual increase of 143.75%.
Turkey has suffered from almost non-stop double-digit inflation since the beginning of 2017, although it had never reached such levels since Erdogan came to power in 2003.
Inflation has skyrocketed since last fall, when the central bank gradually cut its official interest rate by 500 basis points to 14% in an unorthodox easing cycle sought by President Tayyip Erdogan, triggering a crisis of the lyre.