Inflation Soars To 19-Year High As Lira Slump Continues

Topline

Turkey’s annual inflation soared to a 19-year high in December, according to government data, part of an escalating crisis driven by unorthodox monetary policies touted by President Recep Tayyip Erdogan that sent the lira into freefall and to record lows last year, and as consumer prices surge in many parts of the world.

Key Facts

The annual consumer inflation rate rose to 36% year-on-year in December, according to official data from the Turkish Statistical Institute, its highest point since September 2002.  

The figure, a steep double-digit (nearly 14%) climb from November, marks the seventh consecutive month of increasing inflation in Turkey.

Annual price increases for necessities like transportation and food and drink rose even faster, the state data showed, reaching nearly 54% and 44% in December, respectively.

The lira fell 5% on Monday following the government agency’s report—nearly 14 lira to the U.S. dollar—after crashing to record lows in 2021.

Key Background

The lira shed nearly half its value against the dollar in 2021. The crash—which prompted many to switch their savings to other currencies like the euro or dollar—has been partly propelled by Erdogan’s insistence on driving economic growth by cutting interest rates. The president has continued to push his controversial monetary policies in spite of objections from experts and the public. The lira plunged to record lows in 2021 under the policies, though it did rally in December following government efforts to bolster the currency. Turkey is not alone in seeing rising inflation and prices are rising in major economies as they chart paths out of the pandemic that has challenged supply chains. In the U.S., for example, inflation hit a 40-year high in November and in Europe energy prices reached record levels amid fuel shortages. 

Further Reading

Turkish Lira’s Historic Crash: Here’s Why Inflation And Erdogan’s Interest Rate Disdain Have Pummeled Turkey’s Currency (Forbes)

Turkey’s currency woes are likely to get worse (The Economist)

Lira slide pushes young Turks to virtual working overseas (FT)

Inflation Spiked Another 6.8% In November—Hitting 40-Year High As White House Tries To Temper Price Concerns (Forbes)