Istanbul (Reuters) – Turkish monthly inflation climbed to 3.92% in June, its highest level since January, after a plunge in the lira currency following the re-election of President Tayyip Erdogan, official data showed on Wednesday.
Annual inflation dipped to 38.21% in June, from 39.59% the previous month, due in part to base effects, though price pressures are expected to build again through the summer.
The monthly figure was still below a median of estimates in a Reuters poll, which predicted inflation would reach 4.84% month-on-month. The poll had forecast that annual consumer price inflation (CPI) (TRCPIY=ECI) would be 39.47%, and was expected to end the year at 51.5%.
Inflation surged after a late-2021 currency crisis that was sparked by rate cuts that Erdogan had called for, based on his view that interest rates cause inflation. Annual inflation touched a 24-year peak of 85.51% in October before easing.
The lira has lost some 30% of its value so far this year – and more than 20% in June alone.
Erdogan won re-election in late May and has since signalled a U-turn towards more orthodox economic policies including rate hikes. Last month the central bank hiked its key rate by 650 basis points to 15% and called it the “first step” to curb inflation.
Analysts say the pass-through effect of the lira depreciation as well as a minimum wage hike as of July will push inflation higher in the coming months, even though tighter monetary policy could limit the increase in prices.
“Apart from base effects and lower energy prices, the decline in headline inflation year-to-date was driven by FX stability keeping tradable inflation low until the election,” Goldman Sachs said in a note to clients.
“Although policy has turned tighter since the elections, further FX weakness is likely to aggravate core inflation going forward,” including an expected 34% rise in minimum wage and other civil servant wage rises, it said.
The domestic producer price index was up 6.50% month-on-month in June for an annual rise of 40.42%, according to the data from the Turkish Statistical Institute.
The monthly CPI rise was the highest since January, when it jumped 6.65% after the last hike to minimum wage.
On a monthly basis, the biggest CPI increase in June was seen in alcoholic beverages and tobacco prices, which rose 11.13%, while transportation prices increased 7.96%.
Annually, the prices of restaurants and hotels rose the most, by 67.22%, followed by the health sector prices at 65.69% and food and non-alcoholic beverages at 53.92%.
