Huge spending on reconstruction after the February 6 earthquake could add to inflationary pressures in Turkey
Istanbul (AFP) - Turkey’s inflation rate slowed for a fourth straight month in February, data showed Friday, but remained in double-digits ahead of elections where President Recep Tayyip Erdogan’s economic record will be a key issue for voters.
The inflation report comes as the government prepares to pour billions of dollars into rebuilding huge swathes of Turkey following the massive earthquake that struck on February 6.
Scores of cities were devastated and more than 50,000 people were killed in Turkey and neighbouring Syria, leaving millions needing urgent help with accommodation and medical care.
Erdogan’s government was already fighting runaway inflation before the disaster, and mending fences with rich Gulf countries to provide funds for keeping the economy afloat.
The spending for post-quake recovery could turbo-charge consumer spending and industrial production, two key indicators of economic growth, but also spur a rebound in inflationary pressures.
Consumer prices grew at an annualised rate of 55.2 percent in February, down from 57.7 percent in January and 64.3 percent in December, the state statistics agency said.
It peaked at 85.5 percent last October, the highest rate during Erdogan’s two decades of rule.
The official inflation rate is contested by independent economists from the research group Enag, which estimates that consumer prices accelerated again in February to 126.9 percent from 121.6 percent in January.
- ‘Election tool’ -
Ergogan is pushing ahead with May elections despite the widespread quake devastation
Timothy Ash of BlueBay Asset Management said that while Turkish inflation was moderating marginally, the headline figure remains over 55 percent year-on-year “if anyone still believes official data”.
“Erdogan will want to use the pitch of falling inflation as an election tool and his unorthodox policies are working,” he tweeted.
On Wednesday, Erdogan ruled out any delay in elections even though he said 3.3 million people had been forced to leave their homes in the disaster areas.
The 11 affected provinces are still being hit by strong aftershocks from the quake, which make the likelihood of campaigning in the area extremely unlikely.
Erdogan said the vote would go ahead on May 14 as planned, and Turkey’s fragmented opposition is due to nominate a candidate on Monday.
The president is also sticking with contested economic policies that have deterred many foreign investors, including an attempt to fight inflation by slashing interest rates – the opposite of the rate hikes that mainstream economic theory would advise.
Last week, Turkey’s central bank dropped its benchmark interest rate by half a percentage point to 8.5 percent, saying the cheaper borrowing cost would bolster earthquake recovery efforts even as inflation rages.
Liam Peach, senior emerging markets economist at London-based Capital Economics, predicted that inflation would stay “high” while monetary policy remained “so loose and the economy continues to run hot”.
“Even so, this is unlikely to stop the central bank cutting interest rates again at its meeting this month (to 8.00 percent)”, he said in a research note.
The earthquake and its aftershocks caused an estimated $34 billion in damages across Turkey, the World Bank said Monday.
The estimate does not include the eventual costs of reconstruction that are “potentially twice as large,” the Washington-based institution said.
Erdogan has said the devastated regions will be rebuilt within a year.