Turkey’s battle against inflation took a sharp turn for the worse in February, with the annual rate surging to a 15-month high of 67.07%. This exceeded analyst expectations and reignited concerns about the effectiveness of the central bank’s monetary policy strategy.
The Turkish Statistical Institute’s announcement on Monday revealed a steeper-than-anticipated rise in inflation compared to both the Reuters forecast of 65.7% and January’s figure of 61.54%. While the monthly change from January to February came in at 4.53%, still well above the forecast of 3.7%, it marked a decrease from the previous month’s jump of 6.7%.
This unexpected surge was primarily driven by price increases within specific sectors. The hospitality industry, including hotels, cafes, and restaurants, witnessed significant inflation. Additionally, the education sector also experienced price hikes, further pressuring the overall inflation rate.
Experts suggest that the January increase in the minimum wage may have also contributed to February’s inflation reading. While higher wages can improve household purchasing power, they can also lead businesses to raise prices to maintain profit margins.
This recent inflation spike raises questions about the effectiveness of the Central Bank’s current policy. Less than two weeks ago, the bank opted to maintain its key interest rate at 45%, following an eight-month tightening cycle. This decision, which aimed to control inflation through higher borrowing costs, is now under scrutiny.
Given the bank’s previous hawkish stance, some analysts now anticipate further rate hikes, particularly in light of the worsening inflation outlook. The bank itself acknowledged this possibility in a recent statement, indicating that they would tighten monetary policy “in case a significant and persistent deterioration in inflation outlook is anticipated.”
Turkey’s battle against inflation remains a complex and evolving situation. The recent surge highlights the challenges faced by the central bank and policymakers in navigating this economic issue. As the situation unfolds, the bank’s policy decisions and their impact on inflation will be closely monitored by businesses and investors worldwide.