Turkey’s inflation rate continued to rise in January due to further increases in housing prices and utility costs.
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Türkiye’s economy continues to suffer from high inflation. Headline inflation in January was 64.86% year-on-year, up from 64.77% in December and above analysts’ expectations of 64.52%. This was also the highest level since November 2022.
Month-on-month inflation was 6.7%, significantly higher than December’s 2.93% and slightly above the market consensus of 6.49%.
However, core inflation, which excludes volatile food and energy prices, was 70.48% in January, down from 70.64% in December.
Utility bills and housing prices continue to rise
The rate of increase in home prices and utility charges in January was 45.99%, up from 40.39% in the previous month. Prices for household equipment, furniture and regular maintenance also rose by 61.10% from 58.46% in December.
Transport prices increased more slowly in January, from 77.14% to 77.54%, while culture and recreation prices also increased to 61.82% from 61.26% in December.
The food and non-alcoholic beverage inflation rate in January was 69.71%, down from 72.01% in December. Inflation for restaurants and hotels also stabilized slightly at 92.27% from December’s 93.24%.
Raising the minimum wage will boost inflation
Turkey raised its minimum wage by about 49% at the end of December to help people struggling with rising living costs. The current minimum wage is equivalent to 517.6 euros.
At the time, Labor Minister Vedat Isihan said at a press conference reported by Euronews: “We are happy to renew our commitment to ensuring that workers are not crushed by inflation.”
The move comes ahead of Turkey’s local elections in March 2024, during which the ruling AKP is expected to aim to retake major cities such as Ankara and Istanbul.
The minimum wage hike has further fueled inflation, and prices are slowly rising again. If this trend continues, it will mean that the nation’s wage growth will be effectively eroded.
Turkey’s Finance Minister Mehmet Simsek said January’s inflation rate was mainly due to short-term factors.
Simsek emphasized this on social media, and Barron’s reported: “We expect monthly inflation to decline significantly starting in February, consistent with our forecast. Annual inflation will decline significantly in the second half of this year.”
Why is inflation so high in Türkiye?
Turkey has suffered from rapidly rising inflation in recent months. This is largely due to Prime Minister Recep Tayyip Erdogan’s unconventional belief that lower interest rates will help curb inflation. This has resulted in months of unsatisfactory results, exacerbating Turkey’s ongoing currency crisis.
Turkey saw a U-turn in policy under the leadership of then central bank governor Hafise Gey Erkan, who began a series of significant interest rate hikes. Current interest rates are around 45%, which the central bank believes is enough to start curbing inflation.
But Erkann’s recent resignation as governor amid allegations of improper use of power has raised concerns about whether the new governor, Fatih Karahan, will be able to maintain the gains made so far.
