Turkey’s annual inflation rate stabilized at just under 80 percent in July, official data showed on Wednesday, helping to back President Recep Tayyip Erdogan’s pledges that runaway price hikes would soon end.
The official annual rate of consumer price inflation reached 79.6 percent in July, compared with 78.6 percent in June.
Turkey plunged into a new economic crisis almost a year ago when Erdogan embarked on an unusual economic experiment that sought to bring down chronically high inflation by lowering interest rates.
Conventional economic theories, accepted by world governments, hold that lower interest rates fuel growth and push up prices by building demand.
Turkey now has a real interest rate that accounts for inflation of minus 64.4 percent – by far the lowest in the world.
This means that Turks have a strong incentive to spend as much as possible before their lira depreciates even more.
But Erdogan has repeatedly called for “patience” and promised that prices would fall again early next year.
“A price stabilization trend has already started,” Erdogan said two days before the release of the latest inflation report.
“We hope that inflation will enter a significant downward trend in the first months of the new year.”
Until Erdoğan faces a difficult re-election next July, the central bank is now forecasting a fall in the inflation rate to around 40 percent.
– Doubts about data –
Opposition leaders and many Turks no longer trust official government data.
The annual inflation rate reported this week in Istanbul – led by a popular figure from the opposition party – was around 100 percent.
“Turkey’s official inflation and Istanbul’s inflation have historically developed in parallel,” tweeted former Central Bank of Turkey chief economist Hakan Kara.
“The difference, which has reached 19.5 percentage points in the last four months, is remarkable.”
But a respected monthly study published by independent economists at Turkey’s research institute ENAG also showed that prices were stabilizing – albeit at a much faster rate than reported by the state statistics agency.
According to ENAG, the official annual rate of consumer price inflation reached 176 percent in July, compared to 174 percent in June.
The government’s July report showed that price hikes were led by a 119 percent rise in transport costs.
This helps bolster the government’s arguments that inflation is being driven by external factors such as rising energy prices caused by Russia’s standoff with the West over its invasion of Ukraine.
Food and non-alcoholic beverage prices rose 95 percent as the sharp depreciation of the lira made imports more expensive.
The Turkish currency has lost more than half of its value against the dollar in the past 12 months.
It is now trading at nearly 18 to the dollar, down from the 3.5 mark it stood at in 2018.
As a result, Erdogan’s popularity suffered greatly in the second decade of his rule.
A poll released this week showed he lost to one of the top five potential challengers to his rule in a runoff.
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