Turkey inflation surges to nearly 25% in September, highest in 15 years

Istanbul

TURKISH inflation surged to nearly 25 per cent in September from a year earlier, official data showed on Wednesday, hitting its highest in 15 years and sharpening focus on whether the central bank will be able to deliver another hefty rate hike.

The size of the increase - prices jumped by 6.3 per cent from a month earlier - far outpaced expectations and underscored the deep impact of a currency crisis on the economy and consumers.

The lira has lost nearly 40 per cent of its value this year, hit by concerns about President Tayyip Erdogan's influence over the central bank and a rift with Washington.

The sell-off has pushed up prices of everything from food to fuel and eroded confidence in what was once a high-flying emerging market.

"The central bank will need to react to this," said Inan Demir, senior emerging markets economist at Nomura. "This is not something that could be ignored and they will have to hike at their next meeting."

The lira weakened and was at 6.0700 to the US dollar, more than one per cent weaker, at 1150 GMT.

The currency has been underpinned in recent weeks by the central bank's massive 6.25 percentage point rate hike last month and by hopes for an improvement in ties with the United States, particularly over the fate of a jailed American pastor.

It remains to be seen whether Mr Erdogan will brook another increase in borrowing costs. The president, a self-described "enemy of interest rates", has called for lower rates to keep the economy growing.

His repeated criticism of borrowing costs - after last month's hike he said his patience with interest rates "had limits" - have undermined confidence in the central bank and are at the root of the lira's slide.

Inflation rose to 24.52 per cent in September from a year earlier, the data from the Turkish Statistical Institute showed. In August, it rose 17.9 per cent year-on-year.

The month-on-month jump of 6.3 per cent outstripped the 3.6 per cent forecast in a Reuters poll of 15 economists. The numbers put the central bank's inflation target of 5 per cent further out of reach.

"Given the scale of last month's rate hike and continued pressure from President Erdogan for rates not to be raised further, we think that policy will be left on hold," said Jason Tuvey of Capital Economics, adding inflation likely had a "bit further" to rise.

In one month, the cost of food and non-alcoholic drinks rose more than 6 per cent and transportation surged more than 9 per cent, the data showed. Producer prices soared more than 46 per cent from last year.

In a decade and a half in power, Mr Erdogan and his government have built bridges, power plants and hospitals and improved the lives of millions of lower-income Turks. Early on, he won plaudits from investors for taming triple-digit inflation.

But economists say the boom years focused more on consumption rather than productivity - that Turkey built shopping malls when it should have been investing more in factories. The lira sell-off has also put focus on the potential for a crisis at banks.

Finance Minister Berat Albayrak, Mr Erdogan's son-in-law, said Turkey will announce new steps against inflation. Mr Erdogan has called on Turks to report unusual price hikes in stores.

"The currency has appreciated and the central bank has hiked rates aggressively," said Bernd Berg of Woodman Asset Management in Zurich. "To me the worst of currency crisis is over and we should see some stabilisation."

Analysts are looking toward the trial of the US evangelical Christian Pastor Andrew Brunson on Oct 12.

Brunson is charged with links to Kurdish militants and supporters of Fethullah Gulen, the cleric blamed by Turkey for a failed coup attempt in 2016. Brunson has denied the accusations and Washington has demanded his immediate release.

The row - and Washington's doubling of steel tariffs in response to Brunson's detention - has added to the lira's pain. REUTERS