An untested central bank policy that has scared away foreign investors and devalued the currency has caused Turkish inflation to spike last month to levels last seen in the middle of 1998.

According to figures issued on Monday by Turkey’s statistics office, consumer prices increased 83.5% on an annual basis in September, which was in line with the median prediction in a Bloomberg survey. 3.1% monthly growth in inflation was slightly slower than anticipated in a different poll.

Turkey’s inflation rate has exceeded 80% over the past year and is set to surpass 83% by the end of 2018. With prices in the country increasing rapidly, citizens are turning to unorthodox solutions such as cornflakes and microwave meals, according to Al Jazeera. The inflation has led many businesses to close, leaving workers without jobs. The Turkish lira has also decreased dramatically, causing the economy to suffer.

General overview to the Inflation

The recent spike in inflation is largely due to economic policies put into place by Erdogan’s government and also due to U.S. sanctions on Iran that have pushed up prices across Turkey’s economy as well as a decline in global oil prices that have made Turkish exports less attractive for world-wide buyers.

In response to the high inflation, Erdogan promised to raise the salaries of government employees by at least 20% to combat the growing cost of living.

In December 2018, Turkey’s central bank increased its key interest rate by 6.25% in an attempt to bring down inflation rates. The President of the Central Bank, Murat Cetinkaya, said that although he was “cautiously optimistic” about this latest rate hike it would not be enough on its own and that more increases will be needed going forward.

The last time Turkey’s inflation rate was above 80% was in 1995 under a government led by Necmettin Erbakan. At that time, food and energy subsidies were rolled back in an attempt to reduce the fiscal deficit and this led to a large increase in consumer prices.

Cetinkaya said the bank is hopeful that inflation will fall below the targeted 15% by the end of 2019.

Countries with high inflation rates tend to experience slower economic growth and weaker consumer confidence, which makes it more difficult for businesses to operate.

Meanwhile, long-term investors may be encouraged by rising consumer prices as it means firms stand to make more profits if they can pass on their increased costs. This will limit any negative impact from rising consumer prices on stock markets.

Bloomberg Economics’ Opinion on Inflation

“In September, Turkey’s annual consumer price inflation spiked higher, but that wasn’t the end of it. In October, we anticipate that inflation will increase further as a result of the central bank’s continued easing cycle. The impact on the currency and the feed-back into inflation may be faster and larger in the current cycle due to rate hikes in developed and peer emerging nations.

—economics professor Selva Bahar Baziki.