(Bloomberg) -- Turkish inflation accelerated to the fastest this year as higher energy costs complicate efforts to contain domestic demand with jumbo interest-rate hikes.

With services and food costs on the rise, the pace of annual price gains jumped to 61.5% last month from almost 59% in August, according to Turkey’s statistical office. It accelerated for a third straight month and came in line with forecasts.

The Turkish central bank has embarked on a cycle of large back-to-back rate increases in an effort to curb domestic demand that’s been a major driver of inflation over the past two years. 

President Recep Tayyip Erdogan pursued a doggedly pro-growth policy that relied on low borrowing costs in the runup to this year’s election. The central bank has more than tripled its key rate to 30% since Turkey’s new economy team was assembled in June.

What Bloomberg Economics Says... 

“Turkey’s inflation print for September sets the stage for a front-loaded move from the central bank to tame price gains. Underlying price pressures signal a higher trajectory for inflation, which we now see peaking at 73% in 2Q24, up from our earlier call of 70%.”

Selva Bahar Baziki, economist. Click here to read more.

But an upside risk that monetary authorities can’t control has emerged in recent months.

International crude benchmark Brent has soared almost 30% to near $100 a barrel since the start of June. Turkey is a big energy importer and the central bank’s estimate for the annual average oil price is currently at $79.4.

Higher energy costs are also putting pressure on the lira, which Turkey is seeking to stabilize as part of its fight against inflation. Bank of America Corp. strategists see the Turkish currency weakening to 30 per dollar in the last quarter of 2023. 

The central bank’s rate-setting committee is due to convene on Oct. 26. Governor Hafize Gaye Erkan will announce the bank’s revised year-end inflation estimates a week later.

Despite tightening credit conditions, the rising trend of commodity prices should add to existing cost pressures and means the peak of inflation hasn’t yet been reached, said Onur Ilgen, head of Treasury at MUFG Bank Turkey AS. 

“We expect the central bank will hike rates in October on a scale similar to what it’s done in recent months,” he said.

--With assistance from Joel Rinneby.

(Updates Bloomberg Economics comments, adds analyst comment in final two paragraphs.)

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