In May, Turkey’s annual consumer inflation rate reached a staggering 75%, the highest in the past 18 months, according to official data. However, Finance and Economy Minister Mehmet Simsek sought to reassure the public and international investors by saying that “the worst is over.” The surge in year-on-year inflation was mainly driven by rising prices in the education, housing, and restaurant sectors.
Year-on-year inflation stood at 39.59% in May 2023 and this May marked Turkey’s highest year-on-year inflation since November 2022. The peak in annual inflation was expected according to Turkey’s Central Bank projections, which forecast a 38% year-end rate. Despite President Recep Tayyip Erdogan holding an unorthodox economic policy of keeping interest rates low despite high inflation for years, Erdogan returned to economic orthodoxy after the May 2023 general elections with the central bank hiking interest rates from 8.5% to 50% in an aggressive rate hike run between June 2023 and March 2024.
The bank kept the rates steady at 50% in April and May but vowed to resume monetary tightening in case of a deterioration in the inflation outlook. Despite this aggressive monetary policy move, month-on-month inflation came in at just above average levels of around 3%, indicating some relief for Turkish consumers who have been struggling with rising prices for years.
In conclusion, while Turkey’s annual consumer inflation rate exceeded expectations and hit its highest level since November 2021, Finance Minister Mehmet Simsek sought to reassure investors by stating that “the worst is over.” With ongoing monetary tightening measures by the Central Bank, it remains to be seen whether this trend will continue or if there will be another surprise on the horizon for Turkish consumers and investors alike.
