Turkey’s Inflation Rate Reached 67% In February, A Record High

(CTN News) – The Turkish Statistical Institute announced Monday that annual consumer price inflation reached 67.07% in February, above expectations.

Inflation rose to 65.7% last month, according to analysts polled by Reuters.

Statistically, the combined hotel, cafe, and restaurant sector experienced the greatest annual price inflation increase at 94.78%, followed by education at 91.84%, health at 81.25%, and transportation at 77.98%.

The consumer price index for food and nonalcoholic beverages rose 71.12% year-over-year in February, a surprisingly large 8.25% rise on a monthly basis.

During the month of February, the country’s inflation rate changed by 4.53%.

Turkey’s central bank, which had said last month that its painful eight-month rate-hiking cycle was over, may have to tighten again in light of the strong figures.

Considering the strong rise in January and the strength of household spending growth in Q4, Liam Peach, senior emerging markets economist at Capital Economics, wrote in a research note Monday, the strong rise in Turkish inflation to 67.1% y/y in February adds to our concerns.

The possibility of a restart of the central bank’s tightening cycle in the coming months will only increase if core price pressures continue to run hot, he said.

Inflation is expected to drop down to around 35% by year’s end, according to some analysts. A Capital Economics report suggests that pressures remain high and that has taken a setback at the start of this year.

The Turkish Finance Minister Mehmet Simsek told Reuters that would remain high through half of the year “due to base effects and the delayed impact of rate hikes,” but that it would decrease by the end of the year.

Despite Turkey’s dramatic decline in the lira’s value against the dollar, inflation remains high. Monday afternoon, the lira was trading at 31.43 to the greenback. In the past year, the Turkish currency has lost 40% of its value against the dollar, and in the last five years it has lost 82.6% of its value.

According to Timothy Ash, emerging markets strategist at BlueBay Asset Management, inflation prints today were disappointing. Turkey’s central bank is reducing protected FX-linked deposit accounts as well as rebuilding FX reserves.

As a result of this development, inflation has passed through.

Especially ahead of Turkey’s local elections on March 31, policymakers wanted to avoid raising rates again. After the vote, however, inflation may force them to hike again. Currently, Turkey’s key interest rate is 45%, up 3,650 basis points since May 2023.

From midyear onwards, favourable base period effects should create a more virtuous cycle. After local elections, the CBRT may need to raise policy rates further.

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