Turkey in economic crisis as the country’s annual inflation jumped more than expected to three year high of 21% last month in November, data showed on Friday further exposing the risks of recent aggressive rate cuts that prompted a historic slide in the Lira.
Reports indicate that Turkey’s central bank slashed the policy interest rate to 15% from 19% since September due to President Tayyip Erdogan’s pressure, leaving Turkey’s real yields deeply negative which is a red flag for investors and savers.
Data from the Turkish Statistical Institute indicates that the month-month consumer index(CPI) rose 3.5% with the producer price index rising 9.99% from a month earlier and 54.62% on the year which suggests the currency depreciation is stoking imports prices and will swell overall inflation in the months as head economists see annual CPI nearing 30%.
Food, restaurants, and hostels pushed up the annual number, reflecting a surge in demand while the monthly price rise was driven in part by a more than 6% jump in transportation costs, reflecting rising global energy prices.
Turkish Lira lost some 46% of its value against the greenback this year, including 30% last month alone, upending people’s budgets along with the surging prices.
Despite widespread criticism after the currency slumped to an all-time low of 14.0, President Tayyip Erdogan defended the low-rate policy which has been embraced by the government, regulators, and the banks’ association.
The forecasted inflation by the end of the year is 25% and it’s expected to average about 20% over two years.
The central bank says the pressure is temporary and necessary to expand credit, exports, and economic growth as it targets 5% inflation.
Rises in commodity prices have led to many Turkish questioning the credibility of the data released on inflation as they believe inflation is higher given price spikes in basic goods such as food which has risen to 30% on an annual basis through the year.
Turkey raises the minimum wage by 50% due to rising inflation
The soaring inflation throughout the country and a crashing Lira has forced Turkey to raise its minimum wage by 50% starting next year, President Tayyip Erdogan made the announcement on Thursday during a televised press conference, saying the policy shift will deliver the highest minimum wage increase in 50 years.
This 50% increase in minimum wage boost will push Turkey’s minimum wage from 2,826 Lira (182 dollars) a month to 4250 Lira (275 dollars) and will affect some 6 million workers directly.
” We are determined to put an end to the uncertainty that has arisen with the recent fluctuations in the exchange rate and the exorbitant price increases as soon as possible, we will determine the future of this nation together with its men and women, young and old, workers and employers”, Erdogan said.
After the minimum wage announcement, some analysts said that they believe Thursday’s announcement signals that elections may happen ahead of the schedule sometime in 2022 as one of the factors affecting Turkish voters’ choice is minimum wage which is known to the government knows it.
