ISTANBUL - Turkey's annual inflation rate held steady near 60 percent last month, official data showed Thursday, offering the first evidence that President Recep Tayyip Erdogan's economic policy U-turn was working.
The TUIK state statistics agency said consumer prices rose 61.5% over the 12-month period ending in September.
The annual rate stood at 58.9% in August and 47.8% in July.
The month-on-month increase in prices also slowed, to 4.8% in September from 9.1% in August and 9.5% in July.
The data suggest that Turkey's inflation rate is starting to peak after Erdogan signed off on a series of sharp interest rate hikes that have taken the policy rate to 30% from 8.5% in four months.
"The small (by Turkey's recent standards) rise in inflation to 61.5% last month, from 58.9% in August, provides the first signs that the inflation spike is close to levelling off," Capital Economics analyst William Jackson said.
'A vicious mix'
Erdogan had been a lifelong supporter of the unorthodox economic theory that high interest rates cause — rather than cure — inflation.
But he reversed his approach after surviving a difficult May election that coincided with the worst economic crisis of his two-decade rule.
He handed Turkey's economic reins to a group of technocrats with experience on Wall Street and broad support among foreign investors.
Finance Minister Mehmet Simsek is credited with convincing Erdogan that Turkey would enter a systemic crisis unless he radically changed course.
The annual inflation rate touched 85% last October, the highest level since Turkey began its transformation to full-fledged market economics in the 1990s.
The rate then began to slow, reflecting statistical anomalies of the so-called "base effect" — high levels of inflation began to look small compared to even higher ones recorded 12 months earlier.
The annual rate dropped to an 18-month low of 38.2% in June.
Simsek's economic overhaul included a series of steps that contributed to a short-term spike in prices.
Policymakers have allowed the lira to lose 27% of its value against the dollar since the election, to help the central bank refill its depleted coffers.
Simsek also raised taxes to help pay for Erdogan's election campaign pledges and cut through a series of onerous regulations to make economic management more transparent.
"Inflation in Turkey is being fuelled by a vicious mix of deeply negative real interest rates, hefty wage hikes, an overhaul of the tax system and persistent lira weakness," said Bartosz Sawicki, an analyst at the Conotoxia investment group.
The monthly jump in prices "is further exacerbated by soaring food prices and skyrocketing oil prices", Sawicki said.
But the Standard and Poor's rating agency was impressed enough by Simsek's approach to lift its long-term outlook for Turkey from negative to stable.
"We believe that by 2026, absent renewed political uncertainty, the new team can rebalance (Turkey's) economy... toward more balanced external and fiscal accounts, as well as more acceptable levels of inflation," the agency said last week.