Jakarta –

Turki recorded annual inflation reaching 67.07% as of February 2024. This figure is the highest record for the last 15 months with a faster than expected rate of increase.

Reporting from CNBC International, Monday (4/3/2024), the Turkish Statistical Institute stated that this figure was far above expectations. Previously, the results of a Reuters survey of analysts estimated that annual inflation would rise to 65.7% last month.

The combined hotel, cafe and restaurant sector experienced the largest annual price inflation increase of 94.78%. Followed by education at 91.84%, while the health level reached 81.25% and transportation at 77.98%.

Not only that, consumer prices for food and non-alcoholic drinks jumped 71.12% in February on an annual basis (year-on-year/yoy), and recorded a very large monthly increase of up to 8.25%. Meanwhile, the monthly rate of change in the country’s inflation from January to February was 4.53%.

The strong figures fueled concerns that Turkey’s central bank may have to tighten again. In fact, last month the bank indicated that the eight-month consecutive cycle of increasing interest rates had ended.

“Turkey’s stronger-than-expected rise in inflation to 67.1% yoy in February adds to our concerns given that this occurred due to a large increase in inflation in January and strong household spending growth in Q4,” the senior emerging markets economist wrote in Capital Economics Liam Peach, in a research note.

Liam said core price pressure continued to increase. If this condition continues, it is likely that the central bank tightening cycle will restart in the next few months.

On the other hand, some analysts estimate that inflation will fall to around 35% by the end of 2024. Capital Economics, however, warned that the new figures show inflationary pressures are still very strong. The disinflation process also experienced a setback at the beginning of this year.

Turkish Minister of Finance’s Response

Meanwhile, quoted by Reuters, Turkish Minister of Finance (Menkeu) Mehmet Simsek said that the country’s inflation would remain high in the first half of this year due to base effects and the impact of delayed interest rate increases. However, this figure will decrease in the next 12 months.

Persistent high inflation has been fueled by the weakening of Turkey’s currency, the lira, which is at a record low against the dollar. The lira was trading at 31.43 at midday local time on Monday. The lira has lost 40% of its value against the dollar in the past year, and 82.6% in the past five years.

“Clearly the inflation numbers were disappointing this morning,” said Timothy Ash, emerging markets strategist at BlueBay Asset Management, in a note.

Ash said Turkey’s central bank had tried to reduce protections on foreign exchange-related deposit accounts and the need to rebuild foreign exchange reserves. According to him, this condition puts pressure on the lira, creating an inflationary impact.

Analysts note that policymakers in Turkey want to avoid raising interest rates, especially ahead of local elections on March 31. But persistent increases in inflation could force them to raise interest rates again after the vote.

Türkiye’s main interest rate is currently at 45%. This amount follows a cumulative increase of 3,650 basis points since May 2023.

“Hopefully favorable base period effects will start to create a better cycle starting mid-year. CBRT may need to raise its policy rate further after local elections,” Ash wrote.

(shc/hns)

2024-03-04 14:18:29
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