Turkey Records First Decline in Inflation in Eight Months

Confidence UbaniJuly 3, 20241 Mins read225

Illustrative Image : Reuters

Turkey’s inflation rate has declined for the first time in eight months, according to official data published on Wednesday. This decline reportedly followed Turkey’s shift away from unconventional monetary policies, initiated after President Recep Tayyip Erdoğan’s re-election in May last year.

The major change in monetary policies has been significant hikes in borrowing costs – the central bank raised its main interest rate from 8.5% in June last year to 50% by March. The apex bank said the move was to curb the rampant price growth plaguing the country.

Following the latest inflation report, Turkey’s Finance Minister Mehmet Şimşek claimed:

“The disinflation process has begun. We will ensure a permanent welfare increase by implementing our programme with determination until we reach price stability”.

Consumer prices rose by 71.6% this June compared to the same month last year, a drop from May’s nearly two-year high of 75.5%. Monthly inflation also significantly reduced, falling to 1.6% in June from 3.4% in May. This decrease was largely attributed to drops in clothing, footwear, and transportation costs, although housing prices continued to climb. However, some economists have pointed out a discrepancy between the national figures and data from the Istanbul Chamber of Commerce (ITO), which reported an 82% annual rise in prices in Istanbul for June. It was noted that the official numbers were “surprisingly low” compared to ITO figures.

Despite the easing inflation, high expectations among consumers have remained a challenge. According to a survey by Koç University, Turkish consumers predict a year-end inflation rate of about 90%, with 88% considering it a good time to buy long-lasting goods due to scepticism over the government’s assurances of economic improvement.

While Turkey’s inflation rate is showing signs of cooling, achieving price stability and restoring consumer confidence might take a while.

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