Turkey’s inflation figures for January continued to climb as prices for housing and utility services rose further.
The Turkish economy continues struggling with sky-high inflation. The year-on-year headline inflation rate touched 64.86% in January, up from December’s 64.77% and more than analyst estimates of 64.52%. It was also the highest figure since November 2022.
Month-on-month inflation came in at 6.7%, a large step up from December’s 2.93%, as well as slightly above market consensus of 6.49%.
However, core inflation for the month of January, which excludes volatile food and energy prices, clocked in at 70.48%, down from 70.64% in December.
Utility and housing prices continue to soar
Housing and utilities prices rose faster at 45.99% in January, up from 40.39% in the last month. Household equipment, furnishings and routine maintenance prices also rose 61.10%, against 58.46% in December.
Transport prices saw a softer rise in January, at 77.54% and up from 77.14%, as well as culture and recreation prices which inched up to 61.82%, from 61.26% in December.
Food and non-alcoholic beverage inflation fell to 69.71% in January, down from 72.01% in December. Inflation for restaurants and hotels also stabilised slightly at 92.27% from 93.24% in December.
Minimum wage hike boosts inflation
Turkey raised its minimum wage by about 49% at the end of December, to try to help struggling citizens deal with the rising cost of living. The minimum wage is currently the equivalent of €517.6.
At the time, Labour Minister Vedat Isikhan highlighted in a press conference reported by Euronews: “We are pleased to once again fulfill our pledge to prevent our workers from being crushed by inflation.”
The move was made ahead of the March 2024 local Turkish elections, during which the ruling AKP party is expected to try and win back major cities such as Ankara and Istanbul.
The boost to minimum wages has also further inflamed inflation, with prices inching up again. If the trend continues, what it means is the increase in people’s wages will effectively be eroded.
According to Turkey’s finance minister Mehmet Simsek, January’s inflation figure was mainly due to short-term causes.
Simsek highlighted on social media, and reported by Barron’s: “We predict that, starting from February, monthly inflation will decrease significantly and remain in line with our forecast. We will see a significant decline in annual inflation in the second half of the year.”
Why has Turkey’s inflation been so high?
Turkey has been struggling with rapidly rising inflation for several months now. The reason is mainly due to Prime Minister Recep Tayyip Erdogan’s unconventional belief that lowering interest rates helps tame inflation. This has led to months of unsatisfactory results, and seen Turkey’s ongoing currency crisis worsen.
Turkey saw a U-turn in policy under the leadership of the then Central Bank governor, Hafize Gaye Erkan, who launched a series of sizeable interest rate hikes. The current rate is about 45% which, the Central Bank believes, is enough to start controlling inflation.
Erkan’s recent resignation as governor, however, following allegations of improper use of power, has led to increased worries about whether new governor Fatih Karahan will be able to maintain the progress made so far.