ISTANBUL: Turkey’s annual inflation rate is expected to rise to 61.5% in March and only dip to 52.2% by year end due to the impact of the Russia-Ukraine conflict and rising commodity prices, a Reuters poll showed on Monday.
Economists marked up global consumer price inflation expectations following the Russian invasion of Ukraine, with energy prices hitting multi-year highs as the West sanctioned Moscow. Turkey imports almost all of its energy needs.
Turkey’s consumer price index has surged since last fall as the lira weakened after the central bank in September embarked on a 500 basis point-easing cycle long sought by President Tayyip Erdogan.
The lira’s decline and rising food and energy prices pushed inflation to 54.4% in February, the highest in 20 years, despite tax cuts on basic goods and government subsidies for some electricity bills to ease the burden on household budgets.
The median estimate of 17 institutions in the Reuters poll for annual inflation in March was 61.5%, with forecasts ranging between 58.25% and 62.7%.
The annual inflation last stood at 65.1% in March 2002. Economists see inflation remaining high for the rest of the year due to the regional woes, with the median estimate for inflation at year-end standing at 54%, up from 38% in a Reuters poll conducted a month ago.
Forecasts for the year-end figure ranged between 32.3% and 75%.
The government has said inflation will fall with the new economic programme, which prioritises low rates to boost production and exports and aims to achieve a current account surplus. Government officials have said inflation will fall to single digits next year.
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Economists continued to revise up their year-end inflation forecasts although sharp rises in prices in the last two months of 2021 will create a so-called base effect, pushing the headline figure lower at end-2022.
The central bank held its key policy rate steady at 14% in three meetings this year and said measures and policy steps will prioritise liraization in the market.
A unions confederation calculated that despite a VAT cut food prices increased by 8.24% in March in the capital Ankara.
J.P. Morgan said in a research note that the Turkish central bank’s loose policy in the face of rising inflation left the lira vulnerable.
“We expect inflation to remain around or above 60% until the last month of this year. This means that the real interest rate will be deeply in the red for a long time,” the J.P. Morgan said.
“This not only makes it even more difficult to fight inflation, but also leaves the lira vulnerable.”
Month-on-month, CPI was expected to stand at 5.7%, with forecasts ranging from 3.57% to 6.5%, according to the poll.
The Turkish Statistical Institute is scheduled to release March inflation data at 0700 GMT on April 4.
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