Turkish inflation reaches 75% in May

Inflation in Turkey rose to 75.45% year on year in May, according to data published today (June 3) by the state-run Turkish Statistical Institute.

Education was the sector where inflation was the highest, at 104.8%, with housing following at 93.21%. Clothing and communication faced relatively low inflation at 50.85% and 54.31% respectively.

Turkish finance minister Mehmet Simsek repeated his earlier claim that inflation had reached its peak, saying “the worst is over” after today’s figures were released. “Thus, the transition period in the fight against inflation is completed and we are entering the disinflation process,” he added.

Year-on-year inflation will likely drop below 50% by the end of the third quarter, Simsek predicted. He added the market predicts annual inflation to be 33.2% 12 months from now and 21.3% in 24 months.

The Central Bank of the Republic of Turkey (CBRT) left its key policy rate unchanged at 50% on May 23 despite rising inflation. Inflation has been on the rise constantly, standing at 64.85% in January this year, before surging to 69.8% in April and 75.45% last month.

Non-official sources put inflation much higher. Ena-Grup, an independent economics group, estimates it at 120.66% year on year in May.

President Recep Tayyip Erdoğan has been stubbornly against raising interest rates as he believed higher interest rates supported inflation. He also sacked several CBRT governors for disobeying his orders to keep monetary policy loose.

But Erdoğan seemed to change course when he appointed Simsek as finance minister in June 2023, following his re-election.

Simsek backed a new leadership team at the central bank that raised interest rates significantly. The monetary policy committee raised the key policy rate by 4,150 basis points, from 8.5% in June 2023 to 50% in March this year. But it has remained unchanged since then, indicating that the committee has halted its tightening cycle.

The exchange rate of the lira has been stable in recent weeks, with the currency trading at 32.20 to the US dollar today, relatively unchanged from 32.28 at the start of May.