Turkey’s annual inflation in December accelerated to its highest level in 19 years, official data showed on Monday.
Consumer prices rose 36.08%, the highest reading since September 2002, up from 21.31% in November, the Turkish Statistical Institute (TurkStat) said. The reading exceeded market forecasts of around 30.6%, with staples such as transportation and food and drink rising even faster.
In December alone, the consumer price index (CPI) took a rare step into double-digits at 13.58%, the data showed.
Reflecting soaring import prices, December’s producer price index (PPI) rose 19.08% month-on-month and 79.89% year-on-year.
Annual consumer prices were led higher by transport prices, which soared 53.66% year-on-year, while heavily weighted food and drink prices jumped 43.8%.
Inflation has been around 20% in recent months, driven by a slide in the Turkish lira after the central bank slashed its policy rate by 500 basis points to 14% from 19% since September. It will hold its next rate-setting meeting on Jan. 20.
The Central Bank of the Republic of Turkey (CBRT) has said temporary factors had been driving prices and forecast that inflation would follow a volatile course in the short term.
Its year-end inflation forecast was 18.4% in a report published in late October.
The lira hit a record low of 18.4 against the U.S. dollar in December before rebounding sharply the week before last after President Recep Tayyip Erdoğan announced a scheme to safeguard lira deposits against currency volatility.
A consistent and vocal opponent of high interest rates, Erdoğan has been endorsing an economic model based on lower borrowing costs to boost production, investment, employment and eventually growth, and the government, regulators and banking associations have all embraced the new policy direction.
The scheme had reversed the lira slide and triggered a historic 50% surge in the currency’s value in the week through Dec. 24. On Monday it fell 4% to 13.7 against the dollar.
Meanwhile, the government is considering a range of new financial products that would offer guarantees against inflation losses, Göksel Aşan, head of the Presidency Finance Office, told an interview with Nikkei Asia on Friday.
“The Treasury and Finance Ministry is working on inflation-indexed instruments,” Aşan said. “I do not think that it will be another bank deposit instrument, which would mean competing with the new forex-indexed lira deposits,” he said, hinting at bonds without specifying.
Ahead of the inflation data, Turkey on Saturday sharply raised nationwide electricity and natural gas prices for the new year. Prices also jumped for petrol, car insurance and some bridge tolls.
The Energy Market Regulatory Authority (EPDK), citing high global energy inflation, said electricity prices were raised by as much as 125% for high-demand commercial users and by around 50% for lower-demand households for 2022.
Natural gas prices jumped 25% for residential use and 50% for industrial use in January, national distributor BOTAŞ said. The price rise was 15% for power generators.
In Istanbul, home to around a fifth of Turkey’s population of 84 million, retail prices jumped 9.65% month-over-month in December for an annual rise of 34.18%, the most in at least a decade, the Istanbul Chamber of Commerce (ITO) said. Home appliance prices were up more than 20% while food rose by nearly 15%.
Wholesale prices in the city jumped 11.96% from November for an annual rise of 47.10%, ITO said.
Other adjustments included the maximum compulsory traffic insurance premium being increased by 20%, effective as of Feb. 1.
Petrol prices rose by more than half a lira per liter, while diesel prices increased by TL 1.29, the Energy, Petroleum, Gas Stations Employers Union (EPGIS) said on Friday.