Turkey’s annual inflation rate slowed sharply in August as borrowing costs surged to 50%, dampening demand.
Data from the government’s statistics office showed that price growth slowed to 51.97% on an annual basis, compared with 62% the previous month. The figures were in line with analysts’ expectations, according to a recent Bloomberg survey.
Turkish Treasury and Finance Minister Mehmet Simsek said the decline in the consumer price index (inflation) had become clear, and that monthly food price inflation had recorded a negative rate for the first time in 4 years.
This came in a post on the X platform, commenting on the Turkish Statistical Authority’s announcement that annual inflation had fallen to 51.97% in August, its lowest level in 13 months.
“We expect a decline in the underlying trend in monthly inflation in the fourth quarter of 2024, driven by strengthening financial stability, economic balance, and improved expectations,” he added.
Although data suggests that higher interest rates are beginning to rein in one of the world’s highest inflation rates, the rate is still more than 10 times the central bank’s official target.
The decline is partly due to base effects, as the previous year’s readings had risen sharply, according to Bloomberg.
The authorities aim to reduce inflation to 38% by the end of the year, according to previous statements, although most economists expect the rate to be closer to 42%, which is the upper end of the central bank’s forecast range.
The Turkish central bank is also focusing heavily on monthly inflation, which slowed to 2.47% in August from 3.23% in July, slightly above economists’ expectations.
Since June 2023, Turkey has witnessed a major shift in the management of its economy after interest rates rose from 8.5%.
Turkey’s shift to a more traditional approach to managing its economy has been welcomed by foreign bond investors, who have returned to Turkish markets and bought more than $10 billion of securities this year.
However, many businesses and Turks are suffering from the effects of rising prices on the economy.
In August, education fees saw the biggest increase in inflation, followed by housing costs. In contrast, food and non-alcoholic beverage prices fell on a monthly basis, but rose by 44.9% on an annual basis.
Selva Demiralp, an economics professor at Koc University in Istanbul, said the central bank would struggle to reach its 14% inflation target by the end of 2025 without a further slowdown in the economy. Inflation would be around 45% by the end of this year and 33% 12 months later, she said.
The International Monetary Fund last week recommended that Turkey should complement its tight monetary policies with tighter fiscal policies to achieve long-term economic stability.