Turkey inflation hit 68.5% ahead of election

A man pauses in front of a shop in a popular middle-class shopping district in Istanbul, Turkey March 4, 2024. REUTERS/Murad Sezer

ISTANBUL — Turkey’s annual inflation rate climbed to 68.5 percent in March, data showed on Wednesday, underscoring a major reason for the massive losses sustained by President Tayyip Erdogan’s party in nationwide local elections at the weekend.

Monthly inflation was 3.16 percent, the Turkish Statistical Institute said, easing from 4.53 percent and 6.7 percent in the previous two months as fallout from wage hikes and other administered price rises at the start of the year faded.

The consumer price data were a bit below expectations with annual inflation likely to rise through mid-year. The annual rate was expected to be 69.1 percent in March and the monthly rate 3.5 percent, a Reuters poll showed.

Annual inflation – which has soared well above a 5-percent target for years in Turkey, largely due to Erdogan’s past unorthodox monetary policies – is seen falling to about 44 percent by year end, above a central bank forecast of 36 percent.

READ: Turkey’s inflation rises to 67.1% in February

Erdogan’s AK Party was ousted from mayoral seats in several provinces and thumped by the main opposition in big cities Istanbul and Ankara on Sunday, its worst election loss since the AKP was founded more than two decades ago.

Voters punished Erdogan and his party largely over the cost-of-living crisis, AKP officials and analysts said.

“We knew that this election was going to be harder than others because we are applying a very strict fiscal policy that may taste bitter today but we know that it will help in the future,” said Harun Armagan, an AKP central decision board member and vice chair of foreign relations.

Policy U-turn

The central bank launched an aggressive monetary tightening cycle in June, reversing the low-rates policy Erdogan had overseen for years.

Last month the bank surprised analysts when it went further, hiking interest rates by another 500 basis points to 50 percent due to what it called a deteriorating inflation outlook.

Erdogan, addressing an AKP meeting on Tuesday, acknowledged that high inflation was having a big impact on voter behavior, according to a readout from AKP sources.

READ: Turkey hikes rates to 30% to strengthen hawkish turn

“Particularly the pensioners suffered a loss of welfare, and efforts to alleviate those hardships fell short,” Erdogan was quoted as saying.

The March consumer price inflation (CPI) data showed the biggest monthly rises in education, up 13.1 percent, and communication at 5.65 percent. Food and non-alcoholic drinks, housing, restaurants and culture price measures also drove inflation.

Shortly after the data release, Finance Minister Mehmet Simsek said recent monetary and fiscal tightening would help anchor inflation expectations and support disinflation.

“We will do whatever is needed until we achieve our price stability target, our main priority,” he said on social media platform X.

In February, annual consumer price inflation (CPI) was 67.07 percent.

The domestic producer price index was up 3.29 percent month-on-month in March for an annual rise of 51.47 percent, the data showed.