Inflation to drop below 50 pct in May, says finance minister

ISTANBUL

The annual inflation rate will decline below 50 percent in May and fall further in the following months, Treasury and Finance Minister Nureddin Nebati has said.

Despite the increase in food prices due to Ramadan, inflation will continue its downward course thanks to stable global commodity prices and foreign exchange rates which have remained at reasonable levels, Nebati said during an interview with private broadcaster Haber Global on April 4.

He added that all studies show that inflation expectations improved. “People now believe inflation will decline.”

Inflation has become a global problem in the wake of the COVID-19 pandemic and the war between Russia and Ukraine, but Türkiye was one of the most affected because its dependence on imported energy, the minister said. “Energy costs rose in line with the increase in foreign exchange rates.”

Türkiye differed from other countries in the fight against inflation, according to the minister. “Other countries resorted to monetary tightening and hiking interest rates. We started with the aim of fighting inflation without making concessions on growth. The Türkiye Economy Model is different. We implement a unique policy which reduces unemployment and boosts production,” Nebati said.

The latest inflation data released earlier this week met their expectations, the minister said, noting that the inflation rate declined despite the wage increases granted to civil servants, the hike in minimum wages and the devastating earthquakes. “This decline was in line with our forecast.”

The annual inflation rate, which hit 85.5 percent in October last year, dropped from 55.1 percent in February to 50.5 percent in March, the Turkish Statistical Institute (TÜİK) reported on April 3. The monthly increase in consumer prices also eased from 6.65 percent in January and 3.15 percent in February to 2.29 percent last month.

Earthquakes’ effects

The earthquakes which hit 11 provinces in February cost some $104 billion in damage, and this cost will have some impact on the budget balances, Nebati said.

“We need to work to take measures to cover those losses and at the same time have to fight inflation.”

Construction work in the earthquake-affected areas will give a boost to economic activity, the minister said, adding that the effects of the tremors were seen in the first quarter.

Several industries, such as cement, are now benefitting from the earthquake-related construction work, revenues of those sectors are increasing, according to the minister.

“We believe the construction work will both boost production and help compensate for the losses incurred in the first quarter. Their positive effects will be felt starting from the second quarter,” Nebati said.