According to official data, Turkey's annual consumer price inflation rate reached 75.45% in May, slightly higher than expected. This is anticipated to be the peak, with subsequent rate hikes and relative stability of the lira expected to bring relief.
The rise in the consumer price index last month was mainly driven by strong growth in the prices of education, housing, and dining.
According to the Turkish Statistical Institute, the monthly inflation rate in May was 3.37%, compared to 3.18% in April. The annual inflation rate in April was 69.80%.
A survey by Reuters indicated that the annual inflation rate in May is expected to reach a peak of 74.8%, the highest level since November 2022, and then decline to 42.6% by the end of 2024. The forecast range for monthly price increases is between 2.7% and 3.3%.
Since June of last year, the central bank has raised its policy rate by 4,150 basis points. It reversed years of monetary stimulus policy advocated by President Tayyip Erdogan, which aimed to promote growth but led to a surge in inflation.
In March, the central bank last raised rates, adding 500 basis points to 50%, citing a deteriorating inflation outlook. Since then, it has remained stable and pledged to tighten policy further if the inflation outlook worsens "significantly and persistently."
This shift has attracted foreign investor interest and helped increase the central bank's foreign exchange reserves, reaching the highest net level since December.
Investors and analysts say that as the normalization of monetary policy deepens, international investors are increasing their investments in Turkey, focusing on local bonds and credit default swaps.
Last month, the central bank raised its year-end inflation forecast to 38% and stated it would "do whatever it takes" to prevent a long-term deterioration in the outlook.
In January and February, monthly inflation climbed by 6.7% and 4.53%, respectively, mainly due to significant minimum wage increases and New Year price adjustments. In March and April, the pace of inflation slowed to around 3.2%.
Data showed that the domestic producer price index rose by 1.96% month-on-month in May and by 57.68% year-on-year.
