Istanbul: Turkish monthly inflation jumped the most since August, an upswing that could test the central bank’s resolve to quell inflation quickly after halting interest-rate increases last month.
In January, Turkish inflation climbed to 6.7 percent, from 2.9 percent in December, while year-on-year inflation hit nearly 65 percent, according to the Turkish central bank’s figures released Monday.
The consumer price index for the country of 85 million people increased by 64.86 percent annually, up slightly from 64.77 percent in December. Sectors with the largest monthly price rises were health at 17.7 percent, hotels, cafes and restaurants at 12 percent, and miscellaneous goods and services at just more than 10 percent. Clothing and footwear was the only sector showing a monthly price decrease, with -1.61 percent.
Food, beverages and tobacco, as well as transportation, all increased between roughly 5 percent and 7percent month on month, while housing was up 7.4 percent since December.
The monthly rises, economists say, stem from a significant increase to the minimum wage that Turkey’s government mandated for 2024. The minimum wage for the year has risen to 17,002 Turkish lira ($556.50) per month, a 100 percent hike from January 2023.
Turkey’s central bank has been on a prolonged mission to bring down inflation, implementing eight consecutive interest rate hikes since May 2023, for a cumulative 3,650 basis points. The bank’s latest increase, on Jan. 25, raised the key interest rate by 250 basis points to 45 percent.
The more conventional approach follows several years of unorthodox policy during which Ankara refused to tighten rates despite ballooning inflation. The lira is down 38 percent against the dollar year to date and has lost more than 80 percent of its value against the greenback over the last five years.
The latest inflation print comes just days after Turkey’s central bank governor, Hafize Gaye Erkan, announced her resignation, saying Friday that the decision was due to a “reputation assassination” campaign and the need to protect her family.
Erkan became the bank’s central governor by presidential decree in June 2023, and led — along with Turkish Finance Minister Mehmet Simek — the turnaround in Turkey’s monetary policy and subsequent series of interest rate rises.
She was replaced on Saturday by the central bank’s deputy governor, Fatih Karahan, who spent nearly a decade as an economist at the Federal Reserve Bank of New York.
January’s inflation figures “highlight the continued strength of services inflation and may put pressure on new central bank governor Karaham to restart the central bank’s tightening cycle,” Liam Peach, senior emerging markets economist at London-based Capital Economics, wrote in a research note.
“The fact that inflation didn’t rise significantly more than expected in January is positive given the uncertainty about the impact of the minimum wage hike,” Peach wrote. “But the figures present a small setback to the disinflation process and highlight the continued strength of services inflation. For now, the central bank’s end-year inflation forecast of 36 percent remains intact.”
Turkey´s finance minister, Mehmet Simsek, attributed the monthly inflation jump to "temporary effects".
"We predict that, starting from February, monthly inflation will decrease significantly and remain in line with our forecast," Simsek said on social media.
"We will see a significant decline in annual inflation in the second half of the year."
Inflation remains a pressing issue for President Recep Tayyip Erdogan´s government ahead of local elections in March.
His ruling AKP party is trying to win back control of major cities, including Istanbul and the capital Ankara, currently held by the main opposition party.
"The arguments in favour of restarting the tightening cycle with another interest rate hike later this month are compelling and would underline the central bank´s commitment to tackle inflation -- and help to build Governor Karaham´s credibility," Capital Economics analyst Liam Peach said.
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