Turkey’s official inflation rate hit a 23-year high last month as President Recep Tayyip Erdoğan’s unorthodox strategy to manage the country’s $790 billion economy continued to backfire.
According to the country’s statistics agency, the consumer price index rose 73.5 percent in May from a year earlier, the highest level since October 1998, when Turkey was faltered by an unstable coalition government and economic turmoil.
Food prices have become a growing public dissatisfaction in Turkey, rising 91.6% year-on-year.
Erdogan, a staunch opponent of higher interest rates, has ordered the central bank to repeatedly cut borrowing costs in the final months of last year, despite rising inflation.
The president claimed he was working on a new economic model that would take advantage of the cheap lira and a boom in exports to reduce inflation by eliminating the country’s long-standing trade deficit.
Even before the Ukraine war, critics described the plan as a risky economic “experiment” that risked devaluing the Turkish lira and sparking runaway inflation.
The Turkish currency edged lower after Friday’s inflation data, falling below 16.5 Turkish lira against the dollar and putting its 2022 loss close to 20 percent. The lira is down 44% in 2021.
Russia’s invasion of Ukraine adds to the challenges facing Turkey’s economy, as rising global energy prices push up the country’s already huge energy import costs and further fuel inflation.
Despite Turkey’s rapid economic growth thanks to ultra-easy monetary policy, support for Erdogan has been eroded by soaring living costs ahead of presidential and parliamentary elections scheduled for next June.
Erdogan said last month that those linking interest rates to inflation are either “illiterate or traitors.”
Growth last year topped 11 percent, but it is already showing signs of slowing as inflation runs rampant and the lira weakens.
Gross domestic product (GDP) grew 1.2% month-on-month between January and March this year, down from 1.5% in the final quarter of 2021, according to data released earlier this week.
Analysts at Goldman Sachs said higher prices and their disruptive impact on consumer demand will “limit” growth in the coming months.
They added: “The positive impact on exports of a strong tourist season and further lira depreciation can only partially offset the dampening effect of excessive inflation and adverse global forces.
“We maintain our forecast of 3.5% year-on-year GDP growth in 2022, but note that we are now seeing a wider range of uncertainty in this estimate.”