(Bloomberg) -- Turkish inflation is expected to be at its lowest in a year when the statistics office reports data on Friday, though state spending following deadly earthquakes and looser monetary policy risk a return to an upward path.
Consumer prices probably rose an annual 55.7% last month, down from 57.7% in January, according to the median forecast in a Bloomberg survey. Inflation has been slowing in Turkey for the last three months after reaching more than 85% — the highest level since 1998 — a fall attributed to the easing of a 2021 currency crisis that prompted prices to spiral.
That trend may come to an end due to government plans for a fiscal stimulus to offset the economic damage from the Feb. 6 quakes, which may have killed as many as 50,000 people and destroyed thousands of buildings. About 100 billion liras ($5.3 billion) have been allocated for relief efforts alongside cash handouts to families.
President Recep Tayyip Erdogan promised swift construction in the affected area, which accounts for 10% of the country’s gross domestic product.
Economists say the effort endangers the slowdown in inflation. JPMorgan Chase & Co. revised its year-end inflation forecast to 45%, up from 43%.
Erdogan was already prioritizing monetary stimulus before the quakes to shore up voter support ahead of elections in May. The minimum wage was raised by over 50% at the start of the year, and this week the parliament approved a bill granting over 2 million people in the workforce early retirement, said to cost $13.2 billion.
What Bloomberg Economics Says...
“Inflation is set to decelerate in the months to come on high base effects. The central bank will likely count on this mechanical fall to deliver more interest-rate cuts, even as inflation is currently at more than 10 times the 5% target rate.”
— Selva Bahar Baziki, economist. Click here to read more.
Turkey’s central bank lowered its benchmark interest rate by 50 basis points to 8.5% last month, in part a response to the natural disaster. “The effect of earthquake-driven supply-demand imbalances on inflation is closely monitored,” it said at the time.
The president has long demanded lower borrowing costs even as price growth headed to triple digits, in defiance of orthodox economic policy.
Read more: Election Spending Gave Turkish Economy a Boost Before Quakes Hit
Barclays Plc’s Turkey economist Ercan Erguzel said “the supply of unprocessed food from the region is likely to be severely disrupted” and that this could temporarily push food inflation up over the next few months. “The secondary impact from increased public/private spending may still limit the disinflation trend over 2023,” he said.
©2023 Bloomberg L.P.
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