ISTANBUL (Reuters) - Turkish inflation surged to nearly 25 percent in September from a year earlier, official data showed on Wednesday, hitting its highest in 15 years and sharpening focus on whether the central bank will be able to deliver another hefty rate hike.
The size of the increase - prices jumped by 6.3 percent from a month earlier - far outpaced expectations and underscored the deep impact of a currency crisis on the economy and consumers.
The lira has lost nearly 40 percent of its value this year, hit by concerns about President Tayyip Erdogan’s influence over the central bank and a rift with Washington. The sell-off has pushed up prices of everything from food to fuel and eroded confidence in what was once a high-flying emerging market.
“The central bank will need to react to this,” said Inan Demir, senior emerging markets economist at Nomura. “This is not something that could be ignored and they will have to hike at their next meeting.”
The lira weakened and was at 6.0700 to the dollar, more than 1 percent weaker, at 1150 GMT.
The currency has been underpinned in recent weeks by the central bank’s massive 6.25 percentage point rate hike last month and by hopes for an improvement in ties with the United States, particularly over the fate of a jailed American pastor.
It remains to be seen whether Erdogan will brook another increase in borrowing costs. The president, a self-described “enemy of interest rates”, has called for lower rates to keep the economy growing.
His repeated criticism of borrowing costs - after last month’s hike he said his patience with interest rates “had limits” - have undermined confidence in the central bank and are at the root of the lira’s slide. [nL5N1W023E]
Inflation rose to 24.52 percent in September from a year earlier, the data from the Turkish Statistical Institute showed. In August, it rose 17.9 percent year-on-year.
The month-on-month jump of 6.3 percent outstripped the 3.6 percent forecast in a Reuters poll of 15 economists.
The numbers put the central bank’s inflation target of five percent further out of reach.
“Given the scale of last month’s rate hike and continued pressure from President Erdogan for rates not to be raised further, we think that policy will be left on hold,” said Jason Tuvey of Capital Economics, adding inflation likely had a “bit further” to rise.
In one month, the cost of food and non-alcoholic drinks rose more than 6 percent and transportation surged more than 9 percent, the data showed.
Producer prices - a leading indicator of price change in the economy - soared more than 46 percent from last year.
In a decade and a half in power, Erdogan and his government have built bridges, power plants and hospitals and improved the lives of millions of lower-income Turks. Early on, he won plaudits from investors for taming triple-digits inflation.
But economists say the boom years focused more on consumption rather than productivity - that Turkey built shopping malls when it should have been investing more in factories. The lira sell-off has also put focus on the potential for a crisis at banks. [nL8N1W752E]
Finance Minister Berat Albayrak, Erdogan’s son-in-law, said Turkey will announce new steps against inflation. Erdogan has called on Turks to report unusual price hikes in stores. [nA4N1UF00S]
“The currency has appreciated and the central bank has hiked rates aggressively,” said Bernd Berg of Woodman Asset Management in Zurich. “To me the worst of currency crisis is over and we should see some stabilization.”
Analysts are looking toward the trial of the U.S. evangelical Christian Pastor Andrew Brunson on Oct. 12.
Brunson is charged with links to Kurdish militants and supporters of Fethullah Gulen, the cleric blamed by Turkey for a failed coup attempt in 2016. Brunson has denied the accusations and Washington has demanded his immediate release.
The row - and Washington’s doubling of steel tariffs in response to Brunson’s detention - has added to the lira’s pain.
Brunson’s lawyer said he filed an appeal for his client’s release from house arrest on Wednesday. [nL8N1WJ13J]
Additional reporting by Karin Strohecker and Sujata Rao in London; Writing by David Dolan; Editing by Jon Boyle