Tackling Turkey's Inflation Challenge: A Closer Look at Monetary Policy and Price Pressures

In our conversation with an analyst from broker Orbex, we delve into Turkey's current inflation situation and the effectiveness of the central bank's monetary policy. Turkey has been grappling with a persistent inflation problem, evident from the latest CPI and PPI readings. The Consumer Price Index rose by 9.49% MoM in July and by 47.83% YoY, indicating a concerning upward trend.

While these figures are still lower than the peak inflation of 85% in 2022, they break an eight-month trend of inflation slowing down. The lira's sharp depreciation since President Erdogan's election win in May and the government's decision to raise taxes on essential goods and fuel have exacerbated price pressures, heightening the inflation risks.

 

FXMAG: What is your assessment of the CPI reading from Turkey, and do they allow the central bank to continue too loose a monetary policy?

Turkey is facing a high and persistent inflation problem, as the latest CPI and PPI readings show. Turkey's Consumer Price Index rose by 9.49% MoM in July and by 47.83% YoY. Although these figures are much higher than the inflation rates in the US and EU, they are lower than Turkey's 85% peak in 2022.

However, the latest figures are disappointing as they break Turkey's eight-month trend of slowing inflation. The lira's sharp depreciation since President Erdogan's win in the May elections has increased price pressures. The government also raised taxes on many essential goods and fuel, partly to cover the costly pledges it made before the ballot. This worsens the inflation risks.

Meanwhile Turkey's Central Bank may soon be out of fire power as it has already responded with two sharp interest-rate hikes that raised its benchmark by 900 basis points to 17.5%.