Turkey’s central bank vowed to take necessary action to support price stability after inflation data revealed the sharpest rise in consumer prices in 15 years, largely due to the weaker currency.
Inflation surged to 17.9 percent year-on-year in August from 15.85 percent in July, the Turkish Statistical Institute reported Monday. The rate remained well above the central bank’s target range of 5 percent.
Core inflation that excludes volatile items increased to 17.2 percent from 15.1 percent in July.
At the same time, producer prices accelerated sharply to 32.13 percent in August from 25 percent a month ago.
The Turkish lira weakened more than 40 percent against the US dollar since the start of the year amid political concerns and a trade war with the US. A weaker currency raised import prices and stoked inflation.
The central bank said on Monday the monetary stance will be adjusted at the Monetary Policy Committee Meeting, due on September 13, in view of the latest developments.
The bank also expressed its willingness to use all available instruments in pursuit of the price stability objective.
On a monthly basis, consumer prices climbed 2.3 percent compared to a 0.52 percent rise in the same period of last year. Similarly, producer prices advanced 6.6 percent versus 0.85 percent in the previous year.
Jason Tuvey, an economist at Capital Economics, said the central bank is likely to raise policy rates by 200 basis points.
Pressure from the government means that the 700-1000 basis point of rate hikes that are needed to bring real interest rates back to positive territory and reassure the markets that policymakers are willing and able to tackle high inflation are unlikely to be forthcoming, the economist noted.
Elsewhere, Finance Minister Berat Albayrak told Reuters that Turkey’s central bank is an independent organization and will take necessary measures to contain inflation.
The Purchasing Managers’ survey from Markit Economics, showed on Monday, that the manufacturing sector contracted further in August due to slowdowns in both output and new orders. The Purchasing Managers’ Index fell to 46.4 in August from 49.0 in July.
The survey revealed that the lira weakness was central to challenging business conditions, and contributed to strengthening inflationary pressures. Input and output prices increased to the greatest extents since the survey began in June 2005.