Think 6.8% CPI is high? Think again: this morning long-suffering Turks living in Erdogan’s macroeconomic experiment woke up to learn that the country’s annual inflation rate surged to 36.1% last month, its highest in the 19 years Tayyip Erdogan has ruled, blowing away expectations of “only” 27.4%, and laying bare the depths of a currency crisis engineered by the president’s unorthodox interest rate-cutting policies. Staples such as transportation and food – which took increasing shares of households’ budgets during 2021 – rose even faster

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In December alone, consumer prices soared by a hyperinflation-like double-digits, rising 13.58%, the Turkish Statistical Institute said on Monday, eating deeper into the earnings and savings of Turks ravaged by Erdogan’s demented economic turmoil.

The surge in prices reflected a more front-loaded exchange rate pass-through than usual triggered by the size of the exchange rate depreciation. However, as Goldman Sachs notes, inflation in categories like services that are typically not as sensitive to the exchange rate rose sharply as well – reflecting the lack of anchoring of inflation expectations.

Core inflation also surprised to the upside rising to 31.9% yoy in December from 17.6% yoy in November (consensus 24.3% yoy). Given the upside surprise with mom inflation of 13.6% not seasonally adjusted, Goldman thinks that inflation will rise above 40% in Q1-22 and remain there for most of the year.

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