Turkey's inflation at 24-year high in June amid rising energy and commodity prices

The consumer price index rose by about 5% on a monthly basis, official data shows

Customers queue up to use ATMs in Ankara. Turkey's inflation growth has forced government to increase minimum wages. Bloomberg

Turkey’s annual inflation rose to a 24-year high of 78.62 per cent in June, exacerbated by surging energy and commodity prices as well as continued depreciation of its currency.

The country's consumer price index rose 4.95 per cent, month on month, data by the Turkish Statistical Institute, better known as Turkstat, showed on Monday.

The rise in consumer prices beat a Reuters poll forecast of a monthly and annual increase of 5.38 per cent and 78.35 per cent, respectively, in the CPI.

Since last December, Turkey’s inflation has risen more than 42 per cent, Turkstat said.

In June, producer prices rose about 138 per cent annually while food prices surged 93.93 per cent from 91.6 per cent in May.

Transport rates increased 123.37 per cent on and furnishings and household equipment prices surged more than 81 per cent on an annual basis.

The main groups where lower annual price pressure increases were recorded include clothing and footwear with about 27 per cent, education with about 28 per cent and health with more than 39 per cent, according to Turkstat.

Meanwhile, the communications sector recorded the lowest annual increase of about 24 per cent.

“There was a broad-based acceleration in price pressures in June and we expect this trend to continue for the coming months,” Monica Malik and Thirumalai Nagesh, chief economist and economist, respectively, at Abu Dhabi Commercial Bank said in a research note on Monday.

“Despite rising inflation, we do not expect the CBRT [the Central Bank of the Republic of Turkey] to hike interest rates given the political constraints and President [Recep Tayyip] Erdogan’s call for lower interest rates.”

The ADCB expects Turkey’s monetary authorities to continue using “macroprudential and regulatory changes as primary monetary policy tools”, rather than raising the benchmark rate in the country.

Consumer price growth in Turkey has been in the double-digit range since the start of 2017. However, it increased sharply in 2022 amid the surging prices of energy and other commodities.

Oil, which rose to a notch under $140 a barrel in March after Russia’s military assault in Ukraine, has since given up some gains but it is still trading near the $110 per barrel level.

Over much of the past five years, Turkey has remained focused on boosting economic growth and the country’s exports.

Mr Erdogan’s government has advocated the theory that high interest rates cause inflation rather than curb it, and has piled pressure on the central bank to keep borrowing costs low in the face of risks to the currency and prices.

In its June 23 meeting, the central bank kept rates unchanged after ending last year with 500 basis points of cumulative easing.

The banking regulator has kept its key borrowing rate at 14 per cent over the past six meetings as it pursues policies aimed at widening the use of the local currency and making available long-term investment loans.

The approach has left the country with the world’s deepest negative rates when adjusted for prices.

It is also among the key reasons why the Turkish lira is the worst performing currency in emerging markets this year against the dollar, according to Bloomberg data.

The lira has lost more than 20 per cent of its value against the US dollar this year.

The continued slide of the currency and rising consumer prices last week forced the government to announce an interim wage increase of about 30 per cent.

Turkey boosted its minimum wage by a record 50.5 per cent in January.