Turkey’s official consumer price index (CPI) inflation was recorded at 51% y/y in March compared to 55% y/y in February, the Turkish Statistical Institute (TUIK, or TurkStat) said on April 3 (chart).
The official inflation rate as measured by TUIK peaked in October at 86%, which was the highest headline rate posted by Turkey since the 91% registered in June 1998. With the advent of December, the base effect from a year previously came into effect, pulling inflation down.
At 51%, Turkey fell to 10th place in the world inflation league.
The Istanbul-based ENAG inflation research group of economists, meanwhile, released an inflation figure of 113% y/y for March. The ENAG figure calculated for February was 127% y/y.
TUIK also gave an official figure of 62% y/y for producer price index (PPI) inflation in March.
In January, the central bank left its expectation for end-2023 official inflation unchanged at 22% (upper boundary: 27%).
The guidance was based on the assumption that the lira would not experience another crash. As of April 3, the USD/TRY pair was up by 2% at TRY 19.20 from 18.80 on January 26.
The pair has lately been on another record-breaking spree. The latest record, set on March 28, is TRY 19.4223. From the beginning of March, the pair shot through the barriers in the 18.80s. It is now mainly trading in the 19.20s, with some spikes.
If the USD/TRY remains stable, Turkey’s official inflation figure is set to decline to the 30-40%s across 2023.
Amid the booming lira supply and hard currency outflows via record trade deficits, officials only keep the lira from entering into a nosedive by coercing bankers into blocking and gumming up domestic FX demand. Also supportive are unidentified inflows and support from “friendly countries”.
Another lira calamity would come as no surprise. It could happen at any time.
In late March, the monetary policy committee (MPC) of the Turkish central bank held its policy rate at 8.50%.
The central bank and its policy rate are, however, essentially idle on the sidelines. The Erdogan administration conducts monetary policy via macroprudential measures and non-capital controls.
Each day another macroprudential measure or non-capital control, or amendments to already amended measures, are circulated by news services with reference to unnamed sources in the background.
The temperature on the political stage is, meanwhile, rising further. Turkey’s president, Recep Tayyip Erdogan, has launched his election campaign. He has been railing at Iyi Party (Good Party) chair Meral Aksener. Iyi Party’s headquarters in Istanbul were mysteriously hit by two bullets.
Erdogan also took aim at Joe Biden and his ambassador to Ankara. The US ambassador visited Erdogan’s rival Kemal Kilicdaroglu.
So, the smell of the elections is very much in the air now.
Erdogan is heading for a guaranteed dramatic disaster at the polls. In the first round of voting, he could attract a maximum vote share in the 30%s, while Kilicdaroglu would be in the 60%s.
Two more presidential candidates have joined the list of contenders, now finalised. Sinan Ogan, a marginal candidate of some nationalist parties, will attract a maximum 1% of the vote. Muharrem Ince, who lost to Erdogan as the main opposition candidate in the 2018 elections and went on to set up his own party, will draw a few percentage points of support.
Erdogan’s media people circulate the proposition that the president is counting on Ince to take 10pp of Kilicdaroglu's support, thus sending the election to a second round head to head run-off.
Nasreddin Hodja, an infamous 13th-century Turkish humorist, has a good story when it comes to explaining Erdogan’s Ince plans.
A day comes when Hodja’s creditor comes to ask for his money back. Hodja shows him his new fence in his garden and says: “Sheep pass along this street. They will leave their wool on my fence. I’ll collect the wool and my wife will spin it into yarn. Then, the rest is easy! I will sell
the yarn on the market and pay your money back.”
The creditor starts laughing and Hodja says: “You’ve seen the cash in advance and you’re cheering up.”
Erdogan might be viewed as having a victory in advance stuffed into his pocket thanks to his Ince plan. However, he does not seem too cheerful.
The procedural wheels for the elections supposed to be held on May 14 continue to turn. Observers keep an eye on the Supreme Election Board (YSK). Might it delay the elections during one of the procedural steps? A delay remains Erdogan’s main alternative.
If Erdogan decides to move on the nuclear option, namely the declaration of another election victory that would as per usual remain beyond verification, some shocking events (dramatically bigger than the bullets that hit Iyi Party HQ) should be expected to set the stage.
Fleeing abroad remains the last resort.
The global markets have left the banking stress in their wake. The turbulence-free mood on the markets remains intact. Turkey’s five-year credit default swaps (CDS) remain below the 600-level, while the yield on the Turkish government’s 10-year eurobonds remains below the 9%-level.