Turkish inflation decelerated to its lowest level in a year, though state spending following deadly earthquakes and looser monetary policy could increasingly pose a risk to prices.
(Bloomberg) —
Turkish inflation decelerated to its lowest level in a year, though state spending following deadly earthquakes and looser monetary policy could increasingly pose a risk to prices.
Consumer prices rose an annual 55.2% last month, compared with 57.7% in January, according to data released on Friday. The median forecast in a Bloomberg survey of economists was 55.7%
Inflation has been slowing in Turkey for the last four months after soaring past 85%, the highest level since 1998. In large part the steep decline is a result of statistical effects because a 2021 currency crisis that prompted prices to spiral created a high base for comparison.
But prices are now cooling off at a much slower pace, with the fallout from the disaster further unsettling the outlook while monetary policy remains extremely loose.
The government also plans a stimulus program to offset the economic damage from the Feb. 6 quakes, which may have killed as many as 50,000 people and destroyed thousands of buildings. About 100 billion liras ($5.3 billion) have been allocated for relief efforts alongside cash handouts to families.
“Underlying price pressures in Turkey remain worrying and have likely worsened due to the earthquake,” Goldman Sachs Group Inc. analysts led by Kevin Daly said in a report before the data release. “And although we expect exceptionally high base effects to drive inflation lower going forward, we believe the pace of this decline will be slower than expected before.”
In defiance of orthodox economic policy, President Recep Tayyip Erdogan was already prioritizing monetary stimulus before the quakes to shore up voter support ahead of elections in May.
The minimum wage was raised by over 50% at the start of the year, and this week parliament approved a bill granting over 2 million people early retirement, a decision that may come at a cost of $13.2 billion.
The focus in the wake of the disaster is even more on keeping cheap money flowing into the economy.
The central bank lowered its key interest rate by 50 basis points to 8.5% last month, in part a response to the natural catastrophe. Erdogan promised swift construction in the affected area, which accounts for about 10% of the country’s gross domestic product.
Turkey Hints at Rate Pause After Surprise Cut Follows Quakes
“The disaster’s inflationary impact will likely come from potential supply chain problems, higher prices for construction materials and rising food and rent inflation as well as the loosening we expect from higher government spending,” Goldman’s analysts said.
–With assistance from Harumi Ichikura.
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