London/Istanbul (CNN Business)Turkey's annual rate of inflation hit almost 80% in June — its highest level in about two decades.
Consumer prices increased by 78.6% last month compared to June 2021, driven by the soaring cost of food and drink and transportation. Food prices have almost doubled in a year, while the cost of transport was up 123%, according to data from the Turkish Statistical Institute.
It is another grim milestone for a country that has suffered rampant inflation in recent months, and whose currency has lost more than 20% of its value against the US dollar since the start of this year.
Turkey's economy is exposed to the same forces of global inflation as other countries, but President Recep Tayyip Erdogan's unorthodox economic policies have inflamed the crisis, as has the crashing lira, which makes imports much more expensive.
In September, Erdogan ditched the rule book and told Turkey's central bank to start cutting interest rates as prices were rising, rather than raise them.
At a time when the world's major central banks are increasing the cost of borrowing to cool demand in a bid to tame inflation, Turkey is doing the exact opposite. Interest rates have remained at 14% since December.
Erdogan has defended his monetary policy, arguing that lowering rates will bring down inflation and boost production and exports. He has blamed his country's economic problems on foreign interference.
Nureddin Nebati, Turkey's economy minister, said in a tweet Monday that "the persistence of high increases in global commodity prices, particularly in energy and agricultural products" had fueled inflation in June.
He said the government was taking action to shield people from rocketing prices, including by reducing sales taxes and providing subsidies.
Last week, Erdogan announced that his government would raise the minimum wage by 30% starting this month — just six months after hiking it by 50% — to help workers with the soaring cost of living.
But the move could push the country further towards a dangerous wage-price spiral that would make matters even worse.
S&P Global Ratings said in a report last week that inflation combined with the weak value of the Turkish lira will continue to weigh on consumer spending. It expects annual inflation to remain above 70% until the end of the year, and above 20% until at least mid-2023.
"Recession in Russia and Ukraine, as well as the growth slowdown in the eurozone and the UK will weigh on exports, which has been Turkey's important growth driver until recently," the report said.
A rebound in international tourism will bring some relief this summer, according to the report, by raising foreign currency revenues. That could support the lira.
— Julia Horowitz, Gul Tuysuz and Jomana Karadsheh contributed reporting.
CNN