Tax hike ‘to push Turkey's inflation up by 0.5 points’

ISTANBUL

Hikes imposed on consumption taxes will cause inflation to rise by at least 0.5 points, the Turkish Central Bank says. REUTERS photo

Turkey’s Central Bank has said the tax adjustments introduced at the beginning of the New Year will lead to an increase in inflation of around 0.5 points, if producer prices remain unchanged.

In a surprise move, Turkey raised consumption taxes on new passenger cars, alcoholic drinks, tobacco products and mobile phones on Jan. 1, which analysts estimated could add 1 percent to inflation this year.

However, in its December price developments report released yesterday, the Central Bank estimated that the net impact of the hikes would be around 0.5 points.

“The tax hikes’ reflection in the final market prices will be determined by the company’s pricing behaviors,” the bank added.

Finance Minister Mehmet Şimşek has also sought to play down the inflation concerns, saying the hikes’ impact would be around 0.51 percent and describing 1 percent estimations as “exaggerated.”

The New Year hikes have added to the headaches for the Central Bank, which is already propping up the lira with sales of foreign currency reserves while striving to keep interest rates low to support growth.

The data announced by the Turkish Statistical Institute (TÜİK) on Jan. 3 revealed that the country had missed its year-end inflation target, as the consumer price index increased by 7.4 percent over the past year, above the government’s 6.8 percent target.