In January, Turkish inflation recorded its most substantial monthly increase since August, rising by 6.7% from December. The year-on-year inflation rate reached nearly 65%, according to data released by the Turkish Central Bank on Monday.
The annual Consumer Price Index (CPI) for the country’s 85 million people rose by 64.86%, a slight uptick from December’s 64.77%. Sectors experiencing the highest monthly price hikes included health at 17.7%, hotels, cafes, and restaurants at 12%, and miscellaneous goods and services at just over 10%. The only sector with a monthly price decrease was clothing and footwear, down by -1.61%.
Food, beverages, and tobacco, as well as transportation, all saw increases ranging from 5% to 7% month-on-month, while housing rose by 7.4% since December.
Economists attribute the monthly rises to a significant increase in the minimum wage mandated by the Turkish government for 2024, which has now reached 17,002 Turkish lira ($556.50) per month, marking a 100% increase from January 2023.
Turkey’s central bank has been actively working to combat inflation, implementing eight consecutive interest rate hikes since May 2023, amounting to a cumulative 3,650 basis points. The latest increase, on January 25, raised the key interest rate by 250 basis points to 45%.
The central bank’s shift towards conventional policies follows several years of unconventional approaches, during which Ankara resisted tightening rates despite rising inflation. The lira has depreciated by 38% against the dollar year-to-date and has lost over 80% of its value against the greenback over the last five years.
These latest inflation figures emerged shortly after the resignation of Turkey’s Central Bank Governor Hafize Gaye Erkan, who cited a “reputation assassination” campaign and the need to protect her family. Erkan, who took office in June 2023, played a crucial role in implementing a series of interest rate hikes alongside Turkish Finance Minister Mehmet Simek. She was succeeded by the central bank’s deputy governor, Fatih Karahan, a former economist at the Federal Reserve Bank of New York.
Analysts suggest that January’s inflation figures may pressure the new central bank governor to resume tightening monetary policy. While inflation did not rise significantly more than expected, there is concern about the impact of the minimum wage hike. However, the central bank’s end-year inflation forecast of 36% remains unchanged for now, according to Liam Peach, a senior emerging markets economist at Capital Economics.
