Turkish inflation ends year at almost 64.8%, and seen rising further

People shop at a fresh market in Istanbul, Turkey July 5, 2023. REUTERS/Dilara Senkaya/File photo

ISTANBUL  —Turkey’s annual inflation rate climbed to 64.77 percent in December, official data showed on Wednesday, sustaining an upward trend that is expected to continue in coming months after a big rise in the minimum wage.

Month-on-month, consumer price inflation (CPI) was 2.93 percent, according to the Turkish Statistical Institute, dipping from 3.28 percent in November. The measure has eased in recent months as sharp monetary tightening has begun to weigh.

A Reuters poll had shown that annual inflation was expected to rise to 65.1 percent in December, with monthly inflation seen at 3.1 percent. In November, annual inflation was 61.98 percent.

The biggest sectoral price rise in 2023 was shown by hotels and restaurants, up 93.2 percent, followed by education at 82.1 percent. Key food and non-alcoholic drinks prices rose 72 percent during the year.

After years of easy policy, the central bank pivoted in June and has since raised its key interest rate by 3,400 basis points to 42.5 percent to rein in inflation. The central bank said it will complete its tightening cycle as soon as possible.

READ: Turkey’s inflation ticks up to 62%

The bank expects inflation to continue rising and to peak in May 2024 at around 70-75 percent , before declining to about 36 percent at the end of next year.

Economists say increased natural gas consumption in winter and the larger-than-expected minimum wage hike of 49 percent for 2024, which affects some 7 million workers, is expected to push inflation higher in the coming months.

“The underlying inflation trend improved slightly, and inflation expectations stabilized in the last months…Further fiscal stimulus ahead of local elections in March poses a clear upside risk to the central bank’s inflation outlook,” said Bartosz Sawicki, market analyst at Conotoxia fintech.

READ: Turkey central bank hikes rate sharply, sees peak soon

Inflation surged following a currency crisis at the end of 2021 and hit a 24-year peak of 85.51 percent in October 2022. Last year, the lira weakened some 37 percent against the dollar.

The lira had previously weakened 44 percent in 2021, and another 30 percent in 2022. Inflation fell to as low as 38.2 percent last year, partly due to base effects and a brief stable period for the lira.

The domestic producer price index was up 1.14 percent month-on-month in December for an annual rise of 44.22 percent, the data showed.