Turkey's Erdogan: Saddened by 2021 inflation, will investigate exorbitant price hikes

Turkish President Recep Erdogan said on Monday that he was saddened by the high level of inflation in 2021, but noted that he had brought down inflation in the past and would do so again. Erdogan added that he would investigate the exorbitant price hikes and blamed the high inflation on rising commodity prices and the weaker exchange rate. Erdogan added that he would add additional support to civil servant wages. 

His remarks come after data on Monday revealed inflation in Turkey topping 30% YoY in December 2021. Inflation in Turkey surged last month due primarily to a massive near 30% MoM drop in the value of the lira versus the US dollar over the course of the month that took the lira's Q4 2021 losses to more than 35%. Turkey has faced a crisis of confidence in its currency in recent months as investors flee the country after the CBRT axed rates from 19.0% in September to 14.0% in December despite surging inflation.

This has sent real yields in Turkey into deeply negative territory, hence the capital flight that has pressured the exchange rate. The lira was offered some respite after the Turkish government introduced a new policy to compensate Turkish savers against losses as a result of lira depreciation, which some analysts saw as a sort of semi-alternative to rate hikes. This allowed USD/TRY to fall back from above its December record highs above 18.00. The currency pair now trades around 13.00, but the prospect of further decline is limited so long as the CBRT rate remains so far under inflation. 

Market Reaction

The lira ignored Erdogan's comments. No one is expecting the Turkish President to lose faith in his "new economic programme" of pressuring the CBRT to cut rates despite high inflation just yet.