Turkey’s inflation reaches over 75% but economy czar remains optimistic, declares ‘worst is behind us’

Turkey’s annual consumer inflation rate surpassed 75% in May, reaching its highest level in the past 18 months according to official data released on Monday. The surge was primarily driven by rising prices in the education, housing, and restaurant sectors, as reported by the Turkish Statistical Institute. Year-on-year inflation in May of this year was 39.59%, compared to the previous year’s rate of 75.45%.

Following the release of the data, Turkey’s Finance and Economy Minister Mehmet Simsek sought to reassure the public and international investors by stating that the “worst is over.” He expressed confidence that the country would enter a disinflation process and predicted that annual inflation would likely fall below 50% by the end of the third quarter of 2024.

Despite the high inflation figures, Turkey’s Central Bank had projected a year-end rate of 38%, up from the previous forecast of 36%. The bank’s target for 2025 remained at 14%. President Recep Tayyip Erdogan’s government had previously followed an unorthodox economic policy of keeping interest rates low even in the face of high inflation. However, after the May 2023 general elections, economic policies shifted towards a more conventional approach with significant interest rate hikes.

Between June 2023 and March 2024, the central bank raised interest rates from 8.5% to 50%. The bank opted to maintain rates at 50% in April and May, but signaled a readiness to resume monetary tightening if needed due to inflation concerns. Despite the challenges, the government and central bank remain committed to stabilizing inflation levels and restoring economic stability in Turkey.