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Turkish Inflation Reaches Fastest Since 1998 With Surge Past 73%

Turkey’s inflation soared in May to the fastest since 1998 as it came under more pressure from the rising cost of food and energy while ultra-loose monetary policy contributed to currency weakness.
Consumer prices rose an annual 73.5%, up from 70% in April, according to data released by the state statistics agency Friday. The median forecast in a Bloomberg survey of 20 economists was 74.7%.

Monthly inflation was almost 3%, compared with the median estimate of 4% in a separate survey. A core index that strips out the impact of volatile items such as food and energy reached 56%.

Turkish inflation has been in double digits for much of the past half-decade as authorities prioritized economic growth and exports. President Recep Tayyip Erdogan has long advocated the theory that high interest rates cause inflation rather than curb it, pressuring the central bank to keep borrowing costs low in the face of risks to the lira and prices.

The biggest drivers of the latest surge in inflation were food and energy, exacerbated by the global rally in commodities and the Russian invasion of Ukraine. Turkey is a major importer of oil.

The central bank has for now refrained from raising rates after ending last year with 500 basis points of cumulative easing. Instead, it’s promoted policies aimed at widening the use of the local currency and making available long-term investment loans.

The approach has left Turkey with the world’s deepest negative rates when adjusted for prices. It’s also among key reasons why the lira is the worst performer in emerging markets this year against the dollar.

The central bank will hold its next rate-setting meeting on June 23.
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