Annual inflation climbs to 47.8 percent in July

ANKARA

After eight months of deceleration, the annual inflation rate has climbed from 38.2 percent in June to 47.83 percent in July, data from the Turkish Statistical Institute (TÜİK) showed on Aug. 3.

Consumer prices rose by 9.49 percent last month from June, when the monthly inflation was 3.92 percent.

The latest annual and monthly inflation figures, which were released a week after the Central Bank increased its policy rate, are in line with market expectations.

Consumer prices have risen 31 percent since December last year, according to the TÜİK data.

Transport costs rose by 17.8 percent last month from June, while the month-on-month increase in health services prices was 13.6 percent.

Restaurant and hotel prices were up nearly 12 percent, alcoholic beverages and tobacco products prices rose by 11.2 percent.

Housing prices increased 6 percent for an annualized rise of 19.3 percent, said TÜİK, adding that clothing prices rose by 3.2 percent month-on-month and 22.7 percent from July 2022.

The government hiked the value-added tax, the special consumption tax on fuel and some fees in July, which were expected to push up inflation. The deprecation of the Turkish Lira also exerts pressure on costs.

Changes made to economic policies, such as transfers to households, taxes, wages and administered price adjustments, raised the Central Bank’s end-2023 inflation forecast by 7.5 points and its end-2024 inflation forecast up by 3.6 points, the bank’s Governor Hafize Gaye Erkan said on July 27 at the launch of the inflation report.

The Central Bank lifted its end-2023 inflation forecast to 58 percent from 22.3 percent in its previous inflation report three months ago.

“We embarked on a monetary tightening process to bring inflation down permanently. We will further strengthen monetary tightening as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved,” said Erkan last month.

Inflation will rise temporarily in the short term in response to the correction in exchange rates and the measures regarding fiscal discipline, she added.

The cumulative positive effects of the rate hike decisions, along with the bank’s quantitative and selective tightening decisions in late 2023 will begin to be felt and particularly in the underlying trend of inflation in the second quarter of 2024, Erkan said.

“We are carefully laying the groundwork for a sustainable start of disinflation in 2024.”

The bank raised its policy rate - the one-week repo auction rate - for the second month in a row in July. It lifted the rate from 15 percent to 17.5 percent, which was lower than the 500 bps hike most analysts had expected.