over 1 year ago • 2 mins
Data out on Thursday showed that Turkey’s inflation hit a 24-year high last month, which will hardly vindicate the country’s unconventional approach.
What does this mean?
Looks like Turkey skipped Econ 101: the country’s government still believes that cutting interest rates will help bring inflation down, despite the rest of the world – and the world’s textbooks – proclaiming the opposite. But Turkey’s central bank has cut rates by a chunky 3.5% over the last three months alone, and it’s yet to prove traditionalists wrong. In fact, the prices of food and non-alcoholic drinks – which make up a quarter of the country’s total inflation – essentially doubled last month from the same time last year, while transport costs puffed up nearly 120%. And sure, overall inflation came in lower than economists expected, but that’s hardly a victory when it’s 85.5% – seventeen times the central bank’s target and the seventeenth monthly spike in a row.
Why should I care?
For markets: Bigger things are coming.
Turkey’s inflation makes rising western prices rises look positively puny, and it’s only outpaced by the likes of Zimbabwe, Venezuela, Syria, Lebanon, and Sudan. And while Turkey’s knee-shaking increases should slim down as numbers start to be compared to the sharp price rises of late last year, things will still probably get worse. See, the government’s hoping to entice voters with a higher minimum wage and cheaper loans ahead of next year’s elections, which – along with continued rate cuts – will only weaken the lira more and fire up inflation further.
Zooming out: Let’s get conventional.
The UK’s gone the textbook route, announcing a 0.75-percentage-point interest rate hike on Thursday – its biggest in 33 years. And while the central bank stressed that rates will peak lower than markets expect, that doesn’t mean the UK isn’t up against it. In fact, its forecast suggests the UK’s already in a recession, and that the economy will shrink for eight-straight quarters – until the middle of 2024.
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