Inflation in Turkey increased again in February. Consumer prices rose by over 67 percent year-on-year. The central bank recently stopped raising the key interest rate further.
Even after the change at the top of the central bank, consumer prices in Turkey continue to rise massively – even more sharply than recently. The inflation rate rose to 67.07 percent year-on-year, the national statistics office announced today in Ankara. After currency devaluation remained at just under 65 percent at the turn of the year, it has recently picked up speed again.
The sharp increase in prices was particularly noticeable in food and hotel accommodation. Analysts had on average expected an inflation rate of 66.0 percent for February.
The key interest rate remains at 45 percent
Prices rose particularly sharply in the catering industry. The statistics office reported that prices almost doubled year-on-year. The increase in food prices was also above average: they rose by 71 percent year-on-year. There was also a sharp increase in healthcare costs at 81 percent.
The weak local currency, the lira, is seen as a key driver of inflation, making imported goods and services more expensive due to exchange rates. The devaluation trend on the foreign exchange market had recently accelerated. In the morning, one US dollar was paid 31.41 lira and one euro was 34.08 lira. Added to this is the unexpectedly large increase in the monthly minimum wage, which rose to 17,002 lira – the equivalent of 516 euros – at the beginning of the year: an increase of 49 percent.
The country’s central bank did not change the key interest rate in February. It had previously raised it continuously since last spring in order to get the sharp rise in inflation under control. Under former central bank chief Hafize Gaye Erkan, who unexpectedly resigned at the beginning of February due to allegations of nepotism, the key interest rate rose sharply from 8.5 to 45.0 percent.
Erdogan promises improvement by the end of the year
The central bank now left the key interest rate there. It was the first monetary policy decision by the new leader, Fatih Karahan, who, like Erkan, is also seen as a representative of a conventional monetary policy. The monetary authorities now want to maintain the interest rate level “until there is a significant and sustained decline in the underlying trend of monthly inflation.”
At the same time, they warned, the monetary policy stance would be tightened if a significant and persistent deterioration in the inflation outlook was expected. President Recep Tayyip Erdogan, who has long resisted higher interest rates, said yesterday that anti-inflation measures “will begin to work from the end of the year.” After his re-election in May 2023, he replaced the economic policy leadership and thus initiated the interest rate turnaround.
Finance Minister Mehmet Simsek does not expect any relief on the inflation front in the coming months due to statistical base effects. However, from an economist’s point of view, the strong price increase is likely to ease at least somewhat in the current year. An inflation rate of 42.7 percent is expected at the end of the year.
Experts assume the rate is significantly higher
Recently, however, experts have had doubts about the reliability of the inflation data. The background is the numerous personnel changes that Erdogan initiated in the Turkstat statistics office.
In addition, the inflation rate measured by Turkstat and the Istanbul Chamber of Commerce Cost of Living Index used to be very highly correlated – but that changed in spring 2022. Since then, the Istanbul indicator has been significantly higher than the official inflation rate.
Independent experts from the ENAG research group therefore continue to expect drastically higher inflation rates. They put inflation in February at 122 percent compared to the same month last year.