The Turkish lira drops 1% after inflation has reached its highest level in 14 years

Turkish inflation reached its highest level in 14 years in June, pushing more and more President Recep Tayyip Erdogan to step in to stop the price hike.

The price index rose 15.4% in June compared with the same month in 2017, compared with 12.2% in May, under the effect of sharp increases in transportation costs, Furniture and household equipment, due to the devaluation of the read. 19 percent of its value against the dollar since the beginning of the year. Food prices rose by nearly 19 percent

. The numbers were the lowest since the beginning of 2004, when a new method of measuring inflation came into effect. Jason Tuvey, Emerging Market Economist at Capital Economics, called the data "rather terrible." He added: "People are now really worried that inflation will start to get out of control." Turkey's official inflation target is 5%

The Turkish lira has retreated from 1.3 percent against the US dollar at 4.6742 TL after the release of data before rising slightly to about 4.66 TL.

The figures highlight the dilemma of Mr. Erdogan, recently re-elected, and his new economic team, which he has not yet put in place.

The indicators suggest that the Turkish economy will experience a slowdown in the second half of 2018 after stimulus measures growth of 7.4% last year.

But high numbers of inflation will increase the likelihood of a further rise in interest rates at the next meeting of the central bank on July 24 – a move that would further slow down growth .

The central bank has already announced three rate hikes This increase of 500 basis points so far this year, including an emergency increase after reading flirted with TL5 to the dollar in the end of May. But the movements had only a limited effect.

Markets worry about the policy of Mr. Erdogan, a fierce opponent of high interest rates, who promised before the elections that he would use a powerful new presidential system to have more his place in the economic management of his country.

Piotr Matys, an emerging markets badyst with Rabobank, said investors needed to be rebadured that the central bank would be allowed to step in to curb inflation and protect the lira. "Another rate hike on July 24 would be another important step in the process of rebuilding the credibility of the central bank," he said. more than 6 per cent of gross domestic product on an annualized basis.

But Murat Ucer, an adviser on Turkey at GlobalSource Partners Consulting, said such an approach would not be enough. "The government can not continue to hope that the economic downturn will take care of the problems," he said.

"The government needs to look very closely where things are, they must give up growth for a much longer period than they expected and accept the short-term pain for a long-term gain. "