Turkey’s inflation outlook is worsening due to a weak currency, with a key survey by the country’s central bank showing analysts expect the fastest predicted price gains in more than two decades.

Anticipated inflation for 12 months ahead in the monetary authority’s monthly survey of expectations rose by nearly 9 percentage points over the past month to 42% in August, the highest level since February 2002. The lira is projected to lose more than 20% of its value against the dollar during the same period, fueling price increases, according to forecasts published by the central bank on Friday.

The results are at least partly shaped by the bank’s official estimates, which last month saw year-end inflation expectation at 58%, citing the impact from the lira’s recent depreciation. The currency is down 31% this year, amplifying the impact of recent tax hikes announced by the government to finance a widening budget deficit.

New Turkish Central Banker Redraws Inflation Path But Not Policy

The central bank expects inflation to decelerate after peaking in the second quarter of next year, as policymakers continue to gradually increase the cost of money. A newly-installed economic administration after Recep Tayyip Erdogan’s reelection in May has reversed some of the president’s growth at-all-costs policies to slow consumer prices and fix public finances.

But a majority of those in the central bank survey maintained expectations for strong growth this year. Gross domestic product is seen expanding by 3.7% in 2023, unchanged from July, and is expected to accelerate to 4% next year.

--With assistance from Beril Akman.