Turkey's inflation rate slows to 38.2%

Turkey's annual inflation rate slowed to 38.2 percent in June, official data showed Wednesday, although economists warned that this may be a low point for the year.

The rate slowed from 39.6 percent in May, according to the TUIK state statics agency.

A separate study released by independent economists from the ENAG group who question the official data put the June figure at 108.6 percent, up from 105.2 percent in May.

The official rate has been steadily dropping since reaching a more than two-decade high of 85 percent in October of last year.

But economists think inflation will soon start growing faster because of the vast spending pledges President Recep Tayyip Erdogan meted out ahead of May's general election.

Turkey has also allowed its tightly controlled currency to start losing value against the dollar at a faster-than-expected rate.

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"Inflation is likely to rise in July and we think it will end this year at 40-45 percent year-on-year," said Liam Peach, a senior emerging markets economist at Capital Economics.

"With the lira's depreciation having been more front-loaded than we had expected and the currency likely to depreciate further in the coming months, inflation looks set to end this year at a higher level than we had thought.

The lira has lost more than 23 percent of its value against the dollar since Erdogan extended his rule into a third decade in a hard-fought runoff election on May 28.

The drop underscores a radical shift in policies since the election that includes an end to a two-year era of ultra-low interest rates.

The central bank hiked its policy rate to 15 percent from 8.5 percent last month in its first meeting since the election.

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Economists welcomed Erdogan's turn to more traditional economics, urging his team to move even faster.

But the Turkish leader still believes that high interests rates contribute to -- rather than cure -- growing consumer prices.

He began pushing the central bank to slash borrowing rates at all costs in 2021, setting off the worst inflationary spiral of his rule.

Source: AFP