A tram passes shoppers on Istiklal Street in the Beyoglu district of Istanbul, Turkey, on Tuesday, December 19, 2023.
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Turkey’s inflation rose 6.7% in January from December, the first monthly increase since August, and year-on-year inflation reached nearly 65%, according to data released by the central bank on Monday.
The country’s consumer price index of 85 million people rose 64.86% year-on-year, up slightly from 64.77% in December. The highest monthly price increases were in healthcare at 17.7%, hotels, cafes and restaurants at 12%, and other goods and services at just over 10%. Clothing and footwear was the only sector with monthly price declines of -1.61%.
Food, beverages, tobacco and transportation costs were all up about 5-7% from the previous month, while housing costs were up 7.4% from December.
Economists say the monthly wage increase is due to a significant increase in the minimum wage mandated by the Turkish government in 2024. The minimum wage rose to 17,002 Turkish liras ($556.50) per month this year, a 100% increase from January 2023.
Turkey’s central bank has a long-term mission to curb inflation, raising interest rates by a cumulative 3,650 basis points eight times in a row since May 2023. The bank’s latest rate hike on Jan. 25 raised its key interest rate by 250 basis points to 45%.
The more traditional approach follows years of unorthodox policy in which the Turkish government refused to raise interest rates despite rising inflation. The lira has fallen 38% against the dollar since the beginning of the year and has lost more than 80% of its value against the greenback over the past five years.
The latest inflation report comes just days after Turkey’s central bank governor, Hafise Gey Erkan, announced his resignation on Friday, saying the decision was due to a “reputation assassination” campaign and the need to protect his family. .
Erkan became the central bank’s central governor by presidential decree in June 2023, and together with Turkey’s Finance Minister Mehmet Simek, led a turnaround in Turkey’s monetary policy and subsequent series of interest rate hikes.
Turkish Central Bank Governor Hafise Gey Erkan answers questions during a press conference on the Inflation Report 2023-III in Ankara, Turkey, July 27, 2023.
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He was replaced on Saturday by Vice President Fatih Callaghan, who spent nearly a decade as an economist at the New York Fed.
Liam Peach, senior emerging markets economist at London-based Capital Economics, said January’s inflation data “highlights the continued strength of services inflation, prompting new central bank governor Callaham to anticipate a central bank tightening cycle.” “This could put pressure on the government to restart the industry,” it said in a research note.
“Given the uncertainty about the impact of the minimum wage hike, the fact that inflation did not rise much more than expected in January is positive,” Peach said. “However, the numbers do signal some setbacks in the deflation process and highlight the continued strength of services inflation. For now, the central bank’s year-end inflation forecast of 36% remains in place. There is.”
