Jakarta, CNBC Indonesia – Turkey’s inflation year-on-year (yoy) in December 2021 reached the level of 36.08%. This figure is the highest record in Anatolia since September 2002.
In a report by the Turkish Statistical Institute, month-on-month, inflation rose 13.58%. This fell short of analysts’ forecasts for a 9% monthly increase and a 30.6% annual increase.
This itself cannot be separated from the decline in the value of the lira. Throughout 2021, the Turkish lira fell 79.17% against the United States (US) dollar. In addition, there was also an increase in transportation prices and food prices by 53.66% and 43.8%, respectively.
“This reflects a vicious cycle of demand-pull inflation, which is especially dangerous because the central bank has implied that price pressures are coming from supply constraints, and can’t do anything about it,” said Ozlem Derici Sengul, founding partner at Spinn Consulting, in Istanbul.
“Tariffs must be immediately and aggressively raised,” he said. “Yearly inflation will probably hit 40-50% in March.”
The decline in the value of the lira itself cannot be separated from President Recep Tayyip Erdogan’s policy of imposing low interest rates on the central bank. In September, the central bank cut interest rates by 500 basis points.
Erdogan himself is quite adamant in defending his views on low interest rates. Because he considers high interest rates is not a good thing for the economy.
In forcing the central bank to adopt a hawkish policy, he did notreluctant to fire central bank governors who want to raise interest rates. One of them happened last March 2021 where he fired The governor of Turkey’s central bank (TCMB) Naci Agbal. Agbal, who had only held the position for five months, was fired because he wanted to raise interest rates.
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