Turkey’s annual inflation rate decreased in June for the first time in eight months, slowing faster than expected after peaking in May, Bloomberg reports.
According to data published on Wednesday by the Turkish Statistical Institute (TurkStat), inflation dropped to 71.6% last month from 75.5% in May. On a monthly basis, the inflation rate last month was 1.6% compared to 3.3% in May. Both figures exceeded analysts’ estimates.
Turkey is shifting course after two years of pressure on the cost of living, driven by one of the fastest rates of price increases in the world. Officials are optimistic that a rapid decline in inflation will begin following an increase in interest rates by more than 40 percentage points to 50% in less than a year.
However, many economists expect Turkey’s annual inflation rate to exceed the Central Bank of Turkey’s target of 38% by the end of the year. The evolution of inflation will also determine the timing of interest rate cuts. This month, Finance Minister Mehmet Şimşek stated that it is “important” for inflation to fall below 42% — the upper limit of the Central Bank of Turkey’s year-end target, but still eight times higher than the official goal of 5%.
“Deterioration in pricing behavior and persistent inflation in the services sector are challenges for the next period. We expect Central Bank of Turkey officials to continue tightening monetary policy,” said Muhammet Mercan, Chief Economist at ING Bank in Turkey.
While inflation expectations are falling, the outlook for households is bleaker, with price increases forecasted at 71.5% annually.
Analysts also expect Turkey’s GDP growth to slow in the coming months amid tighter monetary policy and high inflation impacting economic activity. This year, analysts predict Turkey’s economy will grow by 3.15%, while the government expects 4% growth. Last year, Turkey’s GDP grew by 4.5%.
