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Turkish inflation slowed to a year-on-year low, although government spending could pose increasing risks to prices following deadly earthquakes and looser monetary policy.
Inflation in Turkey has been slowing for the past four months, after rising by more than 85%, its highest level since 1998. The steep decline is largely due to statistical effects, as a currency crisis in 2021, which pushed prices higher , created a high base for inflation. comparison.
Consumer prices rose 55.2% year-on-year last month, compared to 57.7% in January, according to data released Friday. The median forecast in a Bloomberg survey of economists was 55.7%.
But prices are now cooling at a much slower pace, with the fallout from the disaster further troubling the outlook, while monetary policy remains extremely accommodative.
The government is also planning a stimulus program to offset the economic damage from the February 6 earthquakes, which may have killed as many as 50,000 people and destroyed thousands of buildings. About 100 billion lira ($5.3 billion) has been allocated for relief efforts, in addition to money distributed to families.
What Bloomberg Economics Says…
“Looking ahead, we expect annual nominal interest rates to fall until May. But without the dampening effect of higher energy prices in the base periods, a result of the war in Ukraine, core inflation could prove more persistent. Coupled with inflationary pressures from the earthquake disasters and the expansionary fiscal response to them, annual inflation from base effects may decline faster than expected.”
— Selva Bahar Baziki, economist. Click here to read more.
Despite orthodox economic policies, President Recep Tayyip Erdogan prioritized monetary stimulus before the earthquakes to bolster voter support ahead of May’s elections.
The minimum wage was raised by more than 50% at the start of the year, and this week the House of Representatives passed a bill that would allow more than 2 million people to take early retirement, a move that could cost $13.2 billion.
“Underlying price pressures in Turkey remain worrying and are likely to have been exacerbated by the earthquake,” Goldman Sachs Group Inc analysts said. led by Kevin Daly in a report before the publication of the data. “And while we expect exceptionally high base effects to keep inflation lower going forward, we think the pace of this decline will be slower than previously expected.”
The focus in the aftermath of the disaster is even more on letting cheap money flow into the economy.
The central bank cut its key interest rate by 50 basis points to 8.5% last month, partly in response to the natural disaster. Erdogan promised rapid construction in the affected area, which accounts for about 10% of the country’s gross domestic product.
Turkey hints at tariff pause after surprise cut follows earthquakes
The devastation has also complicated the calculation of economic figures.
The state bureau of statistics said on Friday it could not collect “field prices” in quake-hit counties last month. Instead, they were compiled from “workplace barcode scanner data” and “pricing data collected from the Internet through web scraping techniques,” it said.
–With help from Harumi Ichikura.
(Updates with chart, commentary from economist.)
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