Turkey’s annual inflation rate climbed to 67.07 per cent in February, exceeding expectations and keeping up pressure for tight monetary policy amid strong rises in food, hotel and education prices, official data showed on Monday.
Shortly before the data, Finance Minister Mehmet Simsek told local broadcaster BloombergHT that inflation would remain high in the coming months due to base effects and the delayed impact of rate hikes, but would fall in the next 12 months.
The central bank has hiked interest rates by 3,650 basis points since June, but has now paused its tightening cycle saying that the current 45 per cent policy rate is sufficient to bring inflation down.
Yet some economists see a growing prospect of more tightening sometime after nationwide local elections on March 31, given the price pressure and strong domestic demand.
“Core price pressures continue to run hot and if this continues, the possibility of a restart to the central bank’s tightening cycle will only increase in the coming months,” said Capital Economics senior emerging markets economist Liam Peach.
Month-on-month consumer price inflation (CPI) was 4.53 per cent, according to the Turkish Statistical Institute, down from 6.70 per cent in January but well above a Reuters poll forecast of 3.7 per cent.
Annual inflation was expected to climb to 65.7 per cent in February before falling to 42.7 per cent by the end of 2024, the poll found.
In January, annual consumer price inflation was 64.86 per cent.
“Inflation was high in January due to temporary effects, There could be some continuation of that in February,” Simsek said. “However as of March, inflation will be back on trend. It will become in line with our disinflation path.”
LIRA SLIDE
The lira has weakened 6 per cent this year after a near-37 per cent slide in 2023, further stoking import prices. It was slightly weaker at 31.4205 against the dollar after the data.
Though some analysts predict currency weakness after the elections – in which President Tayyip Erdogan’s ruling party seeks to reclaim big cities from the opposition – Simsek said authorities want neither a depreciating nor very valuable lira.
Restaurants and hotels led the price rises in February, surging 94.5 per cent, followed by a 91.8 per cent rise in education prices. Heavily weighed food and non-alcoholic drinks prices jumped 71.1 per cent.
Economists have said that February inflation was also driven by the lingering impact of this year’s minimum wage hike on the services sector.
Last month, the central bank maintained its 36 per cent year-end inflation target and vowed to keep policy tight for longer to bring inflation down to forecasted path. The Reuters poll showed annual inflation falling only to 42.7 per cent by year end.
The domestic producer price index was up 3.74 per cent month-on-month in February for an annual rise of 47.29 per cent, the data showed.