Turkish Inflation Rate Climbs to New Record High

The economic situation in Turkey continues to come under pressure. The latest data from the Statistics Office in Ankara paint an alarming picture: consumer prices have risen by 69.8 percent compared to the same month last year. An increase that almost completely met the already high expectations of analysts, who had forecast an average inflation rate of 70.1 percent. With this new rise, the trend of the past few months continues, and the highest inflation rate since the end of last year is recorded. In response to rising prices, the Turkish central bank is keeping benchmark interest rates at a high level of 50 percent. The measure is intended to counter inflationary pressure, but the benchmark rate is currently still lower than the inflation rate. This results in a negative real interest rate, a situation that tends to stimulate rather than dampen economic activity, thus paradoxically fueling the inflation further. The persistent negative real interest rate is also considered one of the main factors for the weakness of the national currency, the Lira. Investors find the monetary conditions in Turkey unattractive, which is also reflected in an almost historically weak exchange rate against the US dollar and the euro. The ongoing inflationary spiral is further fueled by the devaluation of the Lira, as imported goods and services become more expensive, in turn, driving up domestic prices. Thus, the Turkish economy is faced with a complex web of monetary policy, currency devaluation, and inflation, untangling which represents one of the central challenges for the country's economic policy.