Inflation in Turkey rises to highest since 1998 on surging food and energy prices

Consumer prices rose an annual 73.5% in May

People buy food at a market in Ankara, Turkey. Annual inflation in Turkey hit 73.5 per cent in May, the highest rate since 1998. AP

Turkey’s inflation soared in May to the highest since 1998 as it came under more pressure from the rising cost of food and energy, while an ultra-loose monetary policy contributed to currency weakness.

Consumer prices rose an annual 73.5 per cent, up from 70 per cent in April, data released by the state statistics agency on Friday showed.

The median forecast in a Bloomberg survey of 20 economists was 74.7 per cent.

Monthly inflation was almost 3 per cent, compared with the median estimate of 4 per cent in a separate survey.

A core index that strips out the impact of volatile items such as food and energy reached 56 per cent.

Turkish inflation has been in double digits for much of the past five years as authorities prioritised economic growth and exports.

President Recep Tayyip Erdogan has long advocated the theory that high interest rates cause inflation rather than curb it, pressuring the central bank to keep borrowing costs low in the face of risks to the lira and prices.

The biggest drivers of the latest surge in inflation were food and energy, exacerbated by the global rally in commodities and Russia's military offensive against Ukraine. Turkey is a major importer of oil.

The central bank has for now refrained from raising rates after ending last year with 500 basis points of cumulative easing.

Instead, it has promoted policies aimed at widening the use of the local currency and making available long-term investment loans.

The approach has left Turkey with the world’s deepest negative rates when adjusted for prices. It is also among the key reasons why the lira is the worst performer in emerging markets this year against the dollar.

The central bank will hold its next rate-setting meeting on June 23.