Consumer prices in Turkey rose unexpectedly in June.

Compared to the previous month, they rose by 1.94 percent, according to the Turkish State Institute for Statistics.

The annual rate of inflation in June was 17.5 percent.

Economists had expected an increase to 17.0 percent.

In May, the inflation rate had fallen to 16.7 percent, which had fueled speculation about a possible lowering of the key interest rate.

This is sometimes demanded by President Recep Tayyip Erdogan to stimulate the economy.

The last time he had warned her about July or August.

Analyzes estimate the prospects for this to be low.

Andreas Mihm

Business correspondent for Austria, East-Central and Southeastern Europe and Turkey based in Vienna.

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    Central bank governor Sahap Kavcioglu had indicated late last week that inflation this month and next could be higher than expected.

    The lira is quoted little changed on Monday at 8.68 lira per dollar and 10.31 lira per euro.

    Kavcioglu calculated with an inflation rate of 12.2 percent at the end of the year.

    In the medium term, the central bank is aiming for a rate of 5 percent.

    Deutsche Bank expects further price increases

    Before that, however, it will probably first go further up.

    Fatih Akcelik, an economist at Deutsche Bank, expects the consumer price index to rise to more than 18 percent this month.

    Home-made reasons in Turkey also contribute to this, such as the increase in electricity prices by 15 percent and natural gas prices by 20 percent at the beginning of the second half of the year.

    In June, producer prices in particular rose sharply, by 42.9 percent over the year. The Turkish finance minister Lütfi Elvan had already expressed concern about the drifting apart of producer and consumer prices, because the producer's price increases will inevitably reach the consumers. The cost of food rose by 20 percent in June, making it increasingly difficult for an already growing layer of citizens to meet their daily needs. This increases the pressure on President Erdogan, who wants to be re-elected in 2023 but is currently getting off badly in polls.

    Erdogan is passing the pressure on to the central bank with the demand for low key interest rates, which have remained at 19 percent since March.

    So far, the central bank chief Kavcioglu, who was newly installed in March - three other members of the central bank council were also replaced at the request of the president - has resisted this.

    The most recent increase in the reserve ratio on foreign exchange liabilities had been interpreted on the markets as a tightening of monetary policy, which had helped the lira, which had been weakening since Kavcioglu's appointment.

    Kavcioglu had stated several times that with him the real interest rate would remain positive, that is, the interest rate would be higher than the rate of inflation.

    Headwind for Erdogan

    Erdogan is also facing headwinds against his "unorthodox" demands within his AK party. The chairman of the budget committee of the Turkish parliament, the former vice-prime minister, Cevdet Yilmaz, said last week in response to questions from the FAZ in Ankara: "Without price stability there can be no sustainable economic development". The central bank decides on the instruments to achieve this goal.

    Last year, it had spent $ 128 billion in reserves to defend the lira exchange rate, which was unsuccessful in the end. In Turkey this has meanwhile become a political issue that the opposition likes to take up. Most recently, however, the central bank sought to obtain air and foreign exchange reserves through swap agreements with other central banks. Such agreements exist with Qatar and China. The latter was only expanded by $ 3.6 billion to $ 6 billion in mid-June. According to media reports, further agreements are in the works, for example with Azerbaijan, rich in oil and gas, which Turkey supported in the war against Armenia.