Turkey's annual inflation rate climbed to 68.5% in March, up from February's 67.1%, as reported by the Turkish Statistical Institut...
Turkey's annual inflation rate climbed to 68.5% in March, up from February's 67.1%, as reported by the Turkish Statistical Institute on Wednesday.
The monthly inflation rate rose by 3.16%, driven primarily by increases in education, communication, and the hospitality sector, which experienced month-on-month growth of 13%, 5.6%, and 3.9%, respectively.
Year-on-year, education recorded the highest inflation rate at 104%, followed by the hospitality sector at 95%, and healthcare at 80%.
To combat the rising inflation, Turkey has been implementing interest rate hikes, with the most recent increase raising the country's key rate from 45% to 50% in late March.
The surge in inflation in recent months can be attributed to a substantial rise in the minimum wage mandated by the Turkish government for 2024. The minimum wage increased to 17,002 Turkish lira (approximately $530) per month in January, marking a 100% increase from the previous year.
Economists anticipate that further rate hikes by the central bank will be necessary to stabilize the economy.
Nicholas Farr, an economist specializing in emerging Europe at Capital Economics, commented that while the March inflation rate represents the smallest monthly increase in three months, it still falls short of the single-digit inflation target that policymakers aim to achieve. He emphasized the need for continued monetary tightening and fiscal policy adjustments.
From June 2023 to January 2024, Turkey's central bank implemented eight consecutive interest rate hikes, totaling an increase of 3,650 basis points. Although the bank paused in February, suggesting the end of the tightening cycle, it resumed rate hikes in March due to a deteriorating inflation outlook.
The recent local elections in Turkey, which took place on March 31, saw the opposition party making significant gains, winning the country's five largest cities and several rural areas. Economic hardships and rising living costs have been major factors influencing voter sentiment.
President Recep Tayyip Erdogan, who has been criticized for exerting tight control over the central bank and refusing to raise interest rates, despite economic challenges, has faced increasing pressure to change his approach. His party's defeat in the recent elections may further influence his economic policies, making them more unpredictable.
Bartosz Sawicki, a market analyst at fintech firm Conotoxia, noted that the election results contribute to political uncertainty and raise questions about Erdogan's commitment to unpopular economic policies. However, with no elections scheduled until 2028, a drastic shift towards a more lenient monetary policy seems unlikely in the near future.
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