Official data released on Thursday revealed that Turkey’s annual inflation rate remained near 60% last month, marking the first signs that President Recep Tayyip Erdogan’s economic policy reversal was taking effect. The TUIK state statistics agency reported a 61.5% increase in consumer prices over the 12-month period ending in September, compared to 58.9% in August and 47.8% in July. The month-on-month price increase also slowed to 4.8% in September from 9.1% in August and 9.5% in July.
Erdogan, a long-time advocate of the unconventional economic theory that high-interest rates exacerbate inflation, changed his approach after a challenging May election coincided with Turkey’s worst economic crisis in two decades. He handed control of the country’s economic policies to a group of technocrats with experience on Wall Street and strong support among foreign investors. Finance Minister Mehmet Simsek played a crucial role in convincing Erdogan that a drastic change in course was necessary to prevent a systemic crisis.
Under Simsek’s leadership, Turkey implemented a series of measures that contributed to a temporary spike in prices. The lira depreciated by 27% against the dollar, helping the central bank replenish its reserves. Simsek also raised taxes to fund Erdogan’s election campaign promises and streamlined regulations to enhance transparency in economic management.
“Inflation in Turkey is being fueled by a combination of deeply negative real interest rates, significant wage hikes, tax system overhauls, and persistent lira weakness,” noted Bartosz Sawicki, an analyst at the Conotoxia investment group. The monthly price increases were further exacerbated by surging food and oil prices.
Despite these challenges, Standard and Poor’s rating agency revised its long-term outlook for Turkey from negative to stable, citing confidence in Simsek’s approach. The agency believes that, barring renewed political uncertainty, the new economic team can rebalance Turkey’s economy by 2026, leading to more balanced external and fiscal accounts and acceptable levels of inflation.