Turkey's inflation rate saw a decline in June, marking the eighth consecutive month of decrease. However, inflation levels remain high compared to historical standards, posing a challenge for the country's central bank. Hafize Gaye Erkan, the new governor, aims to implement measures to effectively control prices and establish a more conventional monetary policy approach.
In June, consumer prices in Turkey rose by 38.2% compared to the same period last year, showing a slight improvement from May's 39.6% increase. This was the lowest inflation rate since December 2021, but it fell slightly short of economists' anticipated consensus rate of 39.0%.
To combat inflation, Turkey's central bank raised its key interest rate from 8.5% to 15% during its June meeting. Governor Hafize Gaye Erkan initiated this shift towards a more conventional monetary policy. However, some analysts felt that the 650-basis-point increase was not strong enough, as they expected a more forceful response.
Several factors contributed to the decline in inflation, including a slowdown in housing and transportation prices. However, food and nonalcoholic beverages experienced a slight increase, and core inflation, which excludes volatile components, also saw an uptick. The significant depreciation of the lira has contributed to the persistent inflationary pressures in Turkey.
Since President Recep Tayyip Erdogan's reelection victory in May, the lira has depreciated approximately 25% against the dollar, further adding to price pressures. The government is implementing various measures, such as increasing the minimum wage and considering salary and pension hikes for civil servants, to address the situation.
