A money changer holds Turkish lira and US dollar banknotes at a money exchange office in Ankara, Turkey, December 16, 2021.
Kagura Guldgan | Reuters
Turkey’s annual inflation rate rose to 68.5% in March, further up from February’s inflation rate of 67.1%, according to a report released by the Turkish Statistical Institute on Wednesday.
The monthly growth rate of consumer prices was 3.16%, led by education, communications, hotels, restaurants, and cafes, which increased by 13%, 5.6%, and 3.9% from the previous month, respectively.
On an annual basis, education was once again the highest at 104% compared to the previous year, followed by hotels, restaurants and cafes at 95%, and healthcare at 80%.
Turkey has launched a concerted effort to combat rising inflation with interest rate hikes, most recently raising its key policy rate from 45% to 50% in late March.
Much of the inflation in recent months has been caused by a significant minimum wage hike mandated by the Turkish government in 2024. That year’s minimum wage rose to 17,002 Turkish liras (about $530) per month in January, a 100% increase from the same level. Period 1 year ago.
Economists expect the central bank will need to raise rates further.
March’s inflation rate was “the smallest monthly increase in three months, suggesting that the effects of January’s large minimum wage hike may have mostly passed, but policymakers are aiming to “We are still a long way from achieving single-digit inflation,” Nicholas Farr, emerging Europe economist at London-based Capital Economics, said in an analyst note on Wednesday.
“The latest inflation numbers do little to change our view that more monetary tightening is ahead and that a more concerted effort to tighten fiscal policy is also needed,” he said.
Turkey’s central bank raised interest rates eight times in a row from June 2023 to January 2024, for a cumulative total of 3,650 basis points. It paused rate hikes in February, signaling the end of the tightening cycle, but resumed raising rates in March, citing a “worsening outlook for inflation,” adding that the “monthly trend in inflation has continued to decline significantly and sustainably.” We will maintain our tightening monetary policy stance until the situation declines.” has been observed. ”
Supporters of Istanbul Mayor Ekrem Imammoğlu, the mayoral candidate of the main opposition Republican People’s Party (CHP), present early results in front of the Istanbul Metropolitan Municipality (IBB) in Istanbul, Turkey, on March 31, 2024. receive and celebrate.
Umit Bektas | Reuters
Analysts say the conclusion of Turkey’s local elections on March 31 will likely make it easier to pursue tighter monetary policy. Turkey’s opposition handed Turkish President Recep Tayyip Erdoğan’s ruling AK Party a historic blow in nationwide municipal leadership polls held on Sunday, with victories in the country’s five largest cities and several regions. .
Political observers say the economic hardships of ordinary Turks and the sharp rise in the cost of living over the past few years had a major impact on the outcome.
President Recep Tayyip Erdogan, who exercises tight control over the central bank, has in recent years refused to raise interest rates, calling them the “root of all evil” and arguing, contrary to economic orthodoxy, that cutting rates is the way to cool inflation. Ta. This was despite a decline in foreign exchange reserves and a rapid depreciation of the Turkish lira, which has lost about 82% of its value against the dollar over the past five years.
Only after appointing a new finance and central banking team in May 2023 did the central bank make a policy shift, signaling greater independence for the bank from the Turkish government’s executive branch. But some analysts say the political defeat of Erdogan’s party in local elections in March could make his future moves even more unpredictable.
“The vote results increase political uncertainty and raise questions about whether President Recep Erdoğan will stick to his unpopular traditional policies,” Bartosz Sawicki, market analyst at fintech firm Konotoxia, said in a note. “There is,” he said. But he added: “With no elections until 2028, further reviews leading to a return to ultra-loose monetary policy seem unlikely.”
