Turkey’s annual inflation likely to accelerate by 1.1%-2.2%

Turkey's yearly inflation is expected to accelerate further in the following months after the announcement of minimum wage hike and administrative price hikes. Deputy Prime Minister Simsek said that the minimum wage rise might accelerate inflation by 1.1%-2.2%. The actual effect will be more towards the lower end of this range due to domestic demand weakness.

Moreover, recently the Turkish government has raised the tax levies on alcoholic beverages and tobacco, increased highway tolls and raised prices for electricity by 6.8%. These increases are expected to add 0.6%-pt to inflation in the coming three months.

Also, the unexpected acceleration of inflation in December and the expectations of price hikes will further eat away the central bank's credibility and increase its inflation forecasts. In spite of the requirement by the CBRT to take measures more carefully than before, it has sounded much lenient till now.