Turkey’s Inflation Rate Nears 20-Year High as Lira Crisis Continues

Turkey’s inflation climbed to a nearly two-decade high in December on the back of a weakening lira that is driving up the cost of food and other basic goods and destabilizing the wider economy.

Annual inflation rose to 36.08% last month, up from 21.3% in November, the Turkish Statistical Institute said Monday—the highest inflation rate since 2002, according to economists.

The rampant inflation raises new concerns that it could overwhelm a government rescue plan unveiled last month to stabilize the battered local currency. The lira was down less than 1% against the dollar on Monday. The currency mounted a significant comeback after the government announced the rescue plan but was still down more than 40% against the U.S. dollar last year.

The inflation figures show how the crisis continues to heap economic pressure on ordinary Turkish people. It has forced some to queue for subsidized bread, cut back on meat and flee to Europe in search of a better life.

“We can’t buy meat, fish, chicken or even cheese anymore,” said Kemal, a 49-year-old security guard. “We mostly eat bread with tea now.”

Turkey’s economy has been in turmoil since last year when President Recep Tayyip Erdogan pressured the central bank into slashing interest rates despite rising inflation. Mr. Erdogan has fired a series of central bank governors and other top officials who opposed his unorthodox vision for the economy, which calls for cutting interest rates to encourage growth, despite high inflation.

The Turkish central bank cut interest rates for the fourth time in as many months in December, bucking a global trend. Central banks have been raising rates to contain inflation which is surging world-wide due to high energy prices and global supply-chain issues.

The interest rate cuts, and resulting slide in the Turkish lira which lost as much as half its value last year before stabilizing, have sparked sporadic protests by Turks who are struggling with the rising prices.

“While all emerging and developed economies in the world are taking precautions and stabilization measures, Turkey is continuing with taking foolish measures,” said Alp Erinc Yeldan, an economist at Istanbul’s Kadir Has University, referring to the rate cuts.

The official inflation figure rose by about 15 percentage points in a single month, an increase comparable with what some major economies might experience in several years, economists say. Only seven countries posted higher rates of inflation last year, including Venezuela, Sudan, Lebanon and Syria.

The government’s rescue plan for the currency included a new financial instrument designed to motivate people to keep their money in the lira, rather than buying foreign currency or gold. The lira mounted a rebound following the announcement of the plan, but has renewed its slide since.

Economists said the continued fall in the currency showed a lack of confidence in government decision making.

“It doesn’t turn out to be a credible instrument in the first place,” said Mr. Yeldan, referring to the rescue plan. “It simply doesn’t offer trust to people.”

Some independent economists say the government’s figures don’t reflect Turkey’s true inflation rate. ENAGrup, a research organization that assesses thousands of prices within Turkey, said Monday that the true annual inflation rate is 82.81%. The organization says it derives its figure from meticulous gathering of pricing data.

Surging inflation was likely to continue to destabilize Turkey’s broader economy, Veysel Ulusoy, an economist and head of the research group, said. 

 “The Turkish economy is going to experience deep troubles in the unemployment market, financial market, and real economy for the coming couple of years,” he said.

Mr. Erdogan defended his economic policies on Monday, saying that exports had increased by nearly a third year-over-year in 2021. He didn’t mention the new inflation figures.

“The last two year’s economic data clearly shows Turkey’s success,” Mr. Erdogan said.