Turkish Inflation Hits 36.08%, as Lira Suffers Worst Losses in 20 Years
Jan. 3, 2022 (EIRNS)—Annual consumer price inflation in Turkey reached an annual rate of 36.08% in December, up from 21% in November, according to Hurriyet Daily News, citing the Turkish Statistical Office, surpassing the former projection of 27% annually for January. The Turkish lira has also suffered the greatest losses in 20 years, covering all the time President Recep Tayyip Erdogan and his Justice and Development Party (AKP) have ruled Turkey. According to the Greek daily Kathimerini the lira lost 44% of its value against the dollar over 2021 and 19% in the last week alone.
The loss occurred despite Erdogan’s “new economic program” which is theoretically aimed at bringing inflation down to 5% and is focused on exports and credit expansion through cutting interest rates. In an obvious effort to preserve hard currency holdings, Erdogan unveiled a scheme two weeks ago in which the state protects converted local deposits from losses versus hard currencies. It initially sparked a sharp 50% rally in the lira, with support from the central bank. Furthermore on Dec. 31, Erdogan called on Turks to keep all their savings in liras and shift gold into banks, claiming that the market volatility was largely under control.
His remarks apparently did not impress the business circles or the “market” and the lira has weakened further to 13.4 to the dollar. In January 2021 the rate was around 7.5 to the dollar. Furthermore, while Finance Minister Nureddin Nebati said earlier in the week that Turks’ dollar holdings have fallen, the official data showed local holdings of hard currencies, which includes companies, soared to a record $238.97 billion last week. At the same time the central bank’s net foreign currency holdings plunged to a low of nearly two decades of $8.63 billion, which follows the central bank spending $2 billion to support the lira through five interventions in December alone.
It seems Erdogan wants it both ways, cutting interest rates to keep the economy from total collapse, but not introducing real capital controls. Turkish companies are very dependent on foreign currency loans, while many households’ mortgages are pegged to the dollar or the euro. High inflation and collapse of the lira skyrockets the cost of servicing mortgages. More generally, the high inflation affects prices for food and basic essentials. In addition, as of Jan. 1, 2022, the natural gas price increased by 25% for households, 15% for power plants, and 50% for businesses; and electricity prices increased by between 52% and 130% for households if they use more than 150 KWh/month, which is very little.