Maslak Financial and Commercial Center in Sariyer district of Istanbul.
Ayhan Alton | moment | Getty Images
Annual consumer price inflation in Turkey rose to 67.07 percent in February, exceeding expectations, the Turkish Statistical Institute said on Monday.
Analysts polled by Reuters expected annual inflation to rise to 65.7% last month.
The hotels, cafes and restaurants sector together witnessed the largest increase in annual price inflation at 94.78%, followed by education at 91.84%, while the health rate reached 81.25% and transportation at 77.98%, according to the Institute of Statistics.
Food and non-alcoholic beverage consumption prices jumped 71.12% in February year-on-year and recorded a surprisingly large monthly rise of 8.25%.
The monthly change rate of inflation in the country from January to February was 4.53%.
These strong figures raise concerns that the Turkish Central Bank, which indicated last month that its painful eight-month interest rate hike cycle was over, may be forced to return to tightening monetary policy.
“The stronger-than-expected rise in Turkish inflation to 67.1% year-on-year in February heightens our concerns given that it comes on the back of a significant increase in inflation in January and strong household spending growth in the fourth quarter,” Liam Beach, chief emerging markets economist at London-based Capital Economics said in a research note on Monday.
“Underlying price pressures continue to rise, and if this continues, the likelihood of a resumption of the central bank tightening cycle will increase in the coming months,” he said.
Some analysts expect an eventual decline in inflation to around 35% by the end of this year. According to Capital Economics, the latest figures “highlight that inflationary pressures in the economy remain very strong and indicate that the disinflation process suffered a setback at the beginning of this year.”
Reuters quoted Turkish Finance Minister Mehmet Simsek as saying that inflation in the country will remain high in the first half of the year “due to base effects and the delayed effect of raising interest rates,” but the reading will decline in the next 12 years. Months.
The continuing high inflation is due to the significant weakness of the Turkish currency. lira, Which reached a record low against the dollar. The lira was trading at 31.43 to the dollar at noon local time on Monday. The Turkish currency lost 40% of its value against the dollar last year, and 82.6% in the last five years.
“Clearly a disappointing set of inflation rates were recorded this morning,” Timothy Ash, emerging markets strategist at BlueBay Asset Management, wrote in a note. He said that the Turkish Central Bank “is trying to reduce protected deposit accounts linked to foreign currencies and the need to rebuild foreign currency reserves.”
He added that this development “continued to put downward pressure on the lira, which led to an inflation transmission.”
Analysts point out that Turkish policymakers wanted to avoid raising interest rates again, especially before the country's local elections on March 31. But relentlessly rising inflation may force them to raise interest rates again after the vote. Turkey's key interest rate is currently 45%, after a cumulative increase of 3,650 basis points since May 2023.
“We hope that favorable base period effects will begin to create a more positive cycle from mid-year. However, the CBRT may need to raise rates further after the local elections,” Ash wrote.
