Turkey inflation hits 75% in expected peak before relief

By Thomson Reuters Jun 3, 2024 | 2:33 AM

By Daren Butler and Oben Mumcuoglu

ISTANBUL (Reuters) -Turkish annual consumer price inflation reached 75.45% in May, a bit above expectations, according to official data on Monday, in what is expected to be the high water mark before a series of rate hikes and relative lira stability bring relief.

The consumer price index rise was driven by strong advances in education, housing and restaurant prices last month.

Monthly inflation is also expected to ease after May, during which it was 3.37%, according to the Turkish Statistical Institute, compared with 3.18% in April. Annual inflation in April was 69.80%.

In a Reuters poll, annual inflation was forecast to peak at 74.8% in May, its highest level since November 2022, before dropping to 42.6% by the end of 2024. Forecasts for month-on-month price rises ranged between 2.7% and 3.3%.

The central bank has raised its policy rate by 4,150 basis points since June last year. It reversed years of monetary stimulus that was championed by President Tayyip Erdogan to boost growth, but which sent inflation soaring.

The bank last raised rates in March, by 500 basis points to 50%, citing a worsening inflation outlook. It has since held steady and vowed to tighten more if there is “a significant and persistent deterioration” in the outlook.

The reversal has drawn foreign investor interest and helped boost the central bank’s foreign reserves, which are at the highest level since December on a net basis.

International investors are ramping up exposure to Turkey, focusing on local bonds and credit default swaps as monetary policy normalisation becomes more deep-rooted, investors and analysts say.

Last month, the central bank nudged up its year-end inflation forecast to 38% and said it would “do whatever it takes” to avoid any longer-term deterioration in the outlook.

In January and February, monthly inflation climbed 6.7% and 4.53% respectively, largely due to a big minimum wage hike and an array of new-year price updates. In March and April, the rise in inflation slowed to around 3.2%.

The domestic producer price index was up 1.96% month-on-month in May for an annual rise of 57.68%, the data showed.

(Reporting by Oben Mumcuoglu and Daren Butler; Editing by Jonathan Spicer and Bernadette Baum)