Introduction

Consumer price inflation in Türkiye moderated further in June, official data showed Wednesday, as the downward trend continues, albeit at a slower pace.

Inflation Figures

Prices climbed 38.21% last month compared with a year earlier, down from May’s 39.59% year-over-year increase, according to the Turkish Statistical Institute (TurkStat) data.

Lowest Level Since December 2021

The June reading marks the lowest level since December 2021, when inflation stood at 36.08%, before rising to above 85% in October 2022, a 24-year high.

Impact of Free Natural Gas Provision

The annual reading recorded more than a 4-point drop in May after Ankara’s provision of free natural gas that month offset other price rises.

Month-on-Month Price Increase

Compared with a month earlier, prices increased 3.92% from May to June, the TurkStat said, up sharply from a 0.04% rise from April to May, the TurkStat data showed.

Steps Taken to Combat Inflation

Türkiye’s economic authorities have taken steps since President Recep Tayyip Erdoğan was reelected on May 28 to combat inflation, including changing course after two years of monetary easing.

The country’s central bank increased its benchmark policy rate by 650 basis points last Thursday, lifting its one-week repo rate to 15%. The monetary authority has also simplified some of the macroprudential measures it had implemented in a drive to boost the Turkish lira.

Impact of Lira Depreciation

The decline in the lira is reflected in domestic prices, stoking inflation in the import-dependent country.

Future Tightening Measures

The central bank has promised more “gradual” tightening, adding that indicators indicate a rise in the underlying inflation trend.

Inflation Surge in 2021

The inflation surged in late 2021 amid a depreciation in the lira that came after the country opted for an easing drive that saw its central bank slash its key policy rate to 8.5% from 19% in 2021.

Reshuffling the Economic Team

Erdoğan reshuffled his economic team after reelection, bringing in Mehmet Şimşek, the respected veteran policymaker, as treasury and finance minister, and Erkan, a former Wall Street banker, as central bank governor.

Predictable Economic Policies

In his remarks after the rate hike, Şimşek said predictable economic policies based on the market economy, a free exchange rate regime, and an inflation-targeting model would enable capital inflows and stabilize the lira.