By Joshua Kirby
Turkey's inflation rate continued to accelerate in September, suggesting the country may need to further increase already high interest rates as it battles to rein in rampant price rises.
The consumer price index increased by 61.5% in September compared with 58.9% the month before, data from the country's statistics agency showed Tuesday. This was largely in line with economists' expectations, according to a FactSet poll.
The Turkish central bank has in recent months turned to repeated interest-rate increases in an effort to bring inflation down, after two years without hikes, but this stricter policy may take time to bear fruit. In September, the bank lifted its key rate to 30%, the fourth consecutive increase under the new leadership of Governor Hafize Gaye Erkan, a former First Republic Bank and Goldman Sachs banker who favors a more orthodox monetary policy.
Food prices continued to drive Turkish inflation in September, increasing 75.1% on year. Services inflation also soared, with prices for hotels, cafes and restaurants rocketing more than 92%, suggesting that Turkey's popularity as a tourist destination is adding to its inflationary headache.
Prices for housing conversely rose at a more moderate 20%, while clothing and footwear prices also rose below the headline average rate. Indeed, the overall increase was relatively small by Turkish standards, suggesting an end to price spikes may be in sight, said William Jackson, chief emerging markets economist at Capital Economics. The central bank is nevertheless likely to raise its rates by a further 10 points by the end of the year, Jackson said.
"The central bank is now clearly committed to tackling the inflation problem and, crucially, it has the political backing to do so," he said.
With inflation already topping the bank's forecasts for the year-end rate and unlikely to ease any time soon, a further tightening of monetary policy will prove necessary, said Bartosz Sawicki, a market analyst at Warsaw-based fintech consultancy Conotoxia.
"A background of re-accelerating inflation, unfavorable balance of payments dynamics and flawed [central bank] credibility undermine the efforts to stabilize the lira with interventions and foreign-currency controls," Sawicki said.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
(END) Dow Jones Newswires
10-03-23 0410ET
