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Turkey’s annual inflation seems to have turned to the highest in 15 months, and the central bank is still on alert even after halting the interest rate hike.
According to the median estimate of Bloomberg economists on the 4th, Turkey’s inflation rate is expected to reach 66% in February, accelerating for the fourth consecutive month. The central bank predicted that inflation would end at 3.6% at the end of this year.
However, the focus of policy authorities is more on monthly inflation that started the year with wage and tax increases. This indicator is well above the level of the fourth quarter, but it is expected to ease from 6.7% in January to 4% in February.
This figure is likely to be the last reading before the local elections at the end of March.
President Recep Tayyip Erdogan’s ruling party is expected to try to regain cities dominated by the opposition parties, such as Istanbul and Ankara, and loose fiscal policy has emerged as an obstacle to the central bank’s inflation containment efforts ahead of the vote.
After a thorough leadership change in early February, newly appointed Governor Fatih Karahan cited the minimum wage increase as the biggest risk in Turkey’s inflation outlook.
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He said, “Despite the central bank’s aggressive monetary tightening reaching the final interest rate, Turkey’s inflation problem is worsening. We see the central bank on hold until the last quarter of this year, but it keeps the possibility of additional increases open due to the risk of inflation spike.”
Policymakers expect annual inflation to peak at over 70% in May, but they have frozen interest rates even after tightening by a cumulative 3650 basis points in eight steps last month.
Moreover, for the first time in February, the central bank mentioned that it considers the rise in the actual value of the lira to be a critical factor in inflation.
In addition, the last policy minutes pointed out the substantial rise in unprocessed food prices as a significant driver of price increases. The new batch of data is likely to exacerbate those concerns.
According to QNB Finansbank, food costs, which account for about a quarter of Turkey’s inflation, are expected to have risen by 8.5% in February compared to January, which is more than double the overall monthly inflation estimate.
Bank economists, including Erkin Isik, said, “Prices in the food group have generally increased at a high rate,” and “Vegetable prices in particular have risen significantly.”
According to the International Monetary Fund (IMF), Turkey is expected to record the world’s fifth-highest inflation rate by the end of 2024, even though the lira has become more stable.
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