A tram passes shoppers on Istiklal Street in Istanbul’s Beyoglu district on Tuesday, December 19, 2023.
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In January, Turkish inflation recorded its biggest monthly increase since August, rising 6.7% from December, while year-on-year inflation reached almost 65%, according to Turkish Central Bank figures released on Monday.
The consumer price index (CPI) for the country of 85 million rose 64.86% annually, up slightly from December’s 64.77%. The sectors with the largest monthly price increases were healthcare at 17.7%, hotels, cafes and restaurants at 12% and miscellaneous goods and services at just over 10%. Apparel and footwear was the only sector to see a monthly price decline at -1.61%.
Food, beverage and tobacco and transportation each rose about 5% to 7% from the previous month, while housing construction increased 7.4% since December.
According to economists, the monthly increases are due to a significant increase in the minimum wage that the Turkish government has mandated for 2024. The minimum wage for the year has increased to 17,002 Turkish lira ($556.50) per month, a 100% increase from January 2023.
Turkey’s central bank has long sought to reduce inflation and has carried out eight consecutive rate hikes since May 2023, totaling 3,650 basis points. The bank’s latest hike on Jan. 25 increased the key interest rate by 250 basis points to 45%.
The more conventional approach is based on a multi-year unorthodox policy in which Ankara refused to raise interest rates despite skyrocketing inflation. The lira has fallen 38% against the dollar year to date and has lost more than 80% of its value against the greenback over the past five years.
The latest inflationary pressure comes just days after Turkish Central Bank Governor Hafize Gaye Erkan announced her resignation. On Friday she said the decision was due to a “reputation assassination” campaign and the need to protect her family.
Erkan was appointed central governor of the bank by presidential decree in June 2023 and – together with Turkish Finance Minister Mehmet Simek – led the turnaround in Turkish monetary policy and the subsequent series of interest rate increases.
Turkish Central Bank Governor Hafize Gaye Erkan answers questions during a press conference on Inflation Report 2023-III on July 27, 2023 in Ankara, Turkey.
Anadolu Agency | Anadolu Agency | Getty Images
She was replaced on Saturday by central bank deputy governor Fatih Karahan, who spent nearly a decade as an economist at the Federal Reserve Bank of New York.
January’s inflation numbers “highlight the continued strength of services inflation and could put pressure on new central bank Governor Karaham to restart the central bank’s tightening cycle,” Liam Peach, senior emerging markets economist at Capital Economics in London, wrote in a research note.
“The fact that inflation did not rise significantly more than expected in January is positive given the uncertainty about the impact of the minimum wage hike,” Peach wrote. “But the numbers represent a small setback to the disinflation process and underline the continued strength of services inflation. The central bank’s year-end inflation forecast of 36% remains in place for now.”
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2024-02-05 08:46:18
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