Turkish inflation climbs to 17.1%, rises in producer prices near crisis high

Turkey’s headline inflation rate rose to 17.1 percent in April while the pace of producer price increases accelerated to 35.2 percent, the highest level since a currency crisis in 2018.

Consumer price inflation in Turkey, which exceeds price rises in all major emerging market economies except crisis-hit Argentina, climbed from 16.2 percent in March, according to official data published on Monday.

Turkey’s inflation is accelerating after the lira slumped against the dollar, driving up the cost of imports. The currency has lost almost a third of its value since the start of last year and has dropped 13 percent since mid-March, when President Recep Tayyip Erdoğan sacked the country’s hawkish central bank governor and replaced him with a dovish economics professor.

The inflation rate was expected to rise to 17.3 percent, according to polls of economists conducted by Bloomberg and the state-run Anadolu news agency. The April increase was led by transportation costs, and the price of furniture and household equipment, which surged by an annual 29.3 percent and 26.3 percent, respectively, the data showed.

Core inflation, which cuts out the price of volatile items such as food, gold and oil, accelerated to 17.8 percent from 16.9 percent in March.

Producer price inflation (PPI) in April hit the highest level since November 2018, when the lira had sold off sharply due to a political spat with the United States over the detention of a U.S. pastor on terrorism charges and the government railroaded economic growth through cheap lending. PPI accelerated from 31.2 percent in March.

Last week, central bank governor Şahap Kavcıoğlu said he expected inflation to peak at 17 percent in April and slow markedly in the second half of the year, paving the way for possible rate cuts.

Kavcıoğlu, who has sympathised with Erdoğan’s unorthodox theory that high interest rates are inflationary, has declined to say whether he is willing to raise interest rates if needed to defend the lira and slow price increases. Last week, he said that the bank would keep rates at above annual inflation, raising concern among investors that he will cut borrowing costs before inflation pressure has fully subsided.

The lira was trading down 0.5 percent at 8.31 per dollar after the data was released, extending losses made earlier in the day.  

The Institute of International Finance (IIF) raised its estimate for the lira's fair value to 9.5 per dollar from 7.5 per dollar after a deterioration in market confidence since March, its chief economist Robin Brooks said on Sunday. Its estimate had stood at 5.5 per dollar early last year.