Turkish inflation accelerated in line with forecasts to exceed 61% for the first time this year as higher energy costs complicate efforts to contain domestic demand with jumbo interest-rate hikes.

With 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. The median estimate in a Bloomberg poll of economists was 61.6%.

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...

“We expect inflation to reach a peak of 70% in the second quarter of next year, before decelerating to a year-end rate of around 40% in 2024. We see even higher price gains as a likely risk scenario, if the currency weakens further or there’s a sustained trek upwards in oil prices.”

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.

“Considering the rising trend of oil prices,” the central bank’s monetary tightening campaign may have to bring rates to a higher peak level than first envisaged, Yatirim Finansman Chief Economist Erol Gurcan said before the data release.

Rising 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.

--With assistance from Joel Rinneby.