ISTANBUL: Turkish consumer price inflation jumped more than expected in April, data showed on Thursday, sending the lira to a record low on concern about the central bank's failure to rein in prices.
Inflation climbed to almost 11 percent year-on-year, stoked by the lira's fall of some 10 percent against the dollar this year.
Double-digit inflation is Turkey's most pressing economic problem, and a growing worry for President Tayyip Erdogan and his ruling AK Party as they head into elections on June 24.
Erdogan, a self-described "enemy of interest rates", has repeatedly called for lower borrowing costs to fuel loan growth and boost the economy. The central bank's reluctance to tighten has exacerbated concerns that it is under political pressure.
"Inflation is high, inflation could accelerate, the central bank is behind the curve," said Guillaume Tresca, a senior emerging markets strategist at Credit Agricole. "They don't have enough room to manoeuvre due to some political pressure ahead of the elections."
The consumer price index climbed 1.87 percent month-on-month, the Turkish Statistical Institute said, above a Reuters poll forecast of 1.6 percent, for a rise of 10.85 percent year-on-year. Core "C" CPI inflation was 12.24 percent year-on-year.
Sentiment toward Turkish assets had already been hit this week, after Standard & Poor's cut Turkey's sovereign rating further into junk territory and a survey showed manufacturing contracted last month.
The S&P move and the government's announcement of a $6 billion incentive package "reignited market concerns about the overheated economy at a time when inflation is rising", said Piotr Matys, a London-based Rabobank strategist.
The lira, one of the worst-performing emerging market currencies this year, weakened to a record low of 4.2487 against the dollar, from Wednesday's close of 4.1785. It was at 4.1885 at 1007 GMT.
The main share index dipped 0.15 percent and the yield on the benchmark 10-year bond rose to 13.25 percent from 12.93 percent on Wednesday. The cost of insuring Turkish debt against default also rose.
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Clothing and shoe costs helped to drive the rise in consumer prices, increasing 10.4 percent on the month, although those in the food and non-alcoholic drinks sector dipped 0.21 percent.
Last week, the bank raised its top interest rate by a more-than-expected 75 basis points but analysts said it would need to do more to fight inflation and support the currency. Its next policy-setting meeting is on June 7.
"Unless quite substantial tightening of monetary policy is delivered, the lira will remain volatile," Rabobank's Matys said, adding the central bank may have to consider an emergency policy meeting beforehand, as was the case in January 2014.
"The next few weeks will be crucial and I don't think the central bank will be able to wait until June 7 to deliver another dose of tightening."
The bank on Monday lifted its end-2018 inflation forecast to 8.4 percent, when it announced its quarterly inflation report. Its inflation target is 5 percent.
Producer prices rose 2.60 percent month-on-month in April for an annual rise of 16.37 percent.
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