Inflation in Turkey Surges After Wage Hike, Puts Central Bank Under Pressure

Official data released on Monday revealed that Turkey’s annual inflation rate held steady in January at close to 65 percent. However, there was a significant increase in month-on-month consumer price hikes, attributed to a substantial raise in the minimum wage.

According to a report from the TUIK statistics agency, the year-on-year inflation rate inched up to 64.86 percent from 64.77 percent in December.

In January, the monthly inflation rate surged to 6.7 percent from December’s 2.9 percent, triggered by a 49-percent increase in the minimum wage that came into force at the beginning of the year.

Turkey’s finance minister, Mehmet Simsek, attributed the monthly inflation jump to “temporary effects”.

“We predict that, starting from February, monthly inflation will decrease significantly and remain in line with our forecast,” Simsek said on social media.

“We will see a significant decline in annual inflation in the second half of the year.”

Inflation remains a pressing issue for President Recep Tayyip Erdogan’s government ahead of local elections in March.

His ruling AKP party is trying to win back control of major cities, including Istanbul and the capital Ankara, currently held by the main opposition party.

Turkey’s central bank, which has raised its key rate from 8.5 percent to 45 percent since June, said last month that the level was sufficient to start easing the cost of living crisis.

The bank’s governor Hafize Gaye Erkan resigned on Friday, less than a year into her tenure, after a scandal involving her family.

She was replaced by Fatih Karahan, a former economist at the Federal Reserve Bank of New York and the US online retail giant Amazon, who may be under pressure to again start raising the interest rate, analysts said.

“The arguments in favour of restarting the tightening cycle with another interest rate hike later this month are compelling and would underline the central bank’s commitment to tackle inflation – and help to build Governor Karaham’s credibility,” Capital Economics analyst Liam Peach said.