Turkey’s inflation comes in lower than expected

Turkey’s monthly inflation rate in June was lower than expected despite the continued depreciation of the lira currency following the re-election of Turkish President Recep Tayyip Erdogan.

Türkiye’s consumer price index rose by 3.92% month-on-month, Official data show Wednesday. The reading was below the 4.84% forecast by Reuters and compared with May’s 0.04% increase.

The biggest increases were in the prices of tobacco and alcoholic beverages, up 11.13 percent, while restaurant and hotel prices edged up 4.31 percent.

Inflation rose 38.21% year-on-year, also slightly below the Reuters forecast of 39.47%.

While June marked the eighth straight month of slowing price growth, Conotoxia market analyst Bartosz Sawicki told CNBC that there is “no reason to be optimistic.”

“The lira’s free fall is starting to take its toll again as it reignites cost pressures,” he said. Meanwhile, Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, said the country’s figure could be even higher.

“Given the odd 25% FX adjustment after the election and concerns about FX pass-through, it could be worse,” Ash said in an emailed statement.

Ash added that the central bank would need to “work very hard to bring inflation down significantly”.

Turkey’s inflation rate soared to 85% in October last year.this turkish lira It was last traded at 26.09 against the USD.

Ash continued: “With Simsek there is at least an opportunity to manage (get through) this without triggering a broader systemic crisis, but there is absolutely no room for policy error at this stage.”

Erdogan had Appointment of former economy minister Mehmet Simsek As his new finance minister and economy minister, he is known for his market-friendly policies.

In addition to this appointment, there is also the new governor of Türkiye’s central bank, former wall street banker hafiz gay elkann.

Last month, the central bank raised its benchmark interest rate to 15 percent from 8.5 percent and confirmed it would further gradually tighten monetary policy until the domestic inflation situation improves.

However, Contoxia’s Sawicki said the lira’s depreciation was not the only source of inflationary pressure.

“With permanently negative real interest rates and an overheated economy, inflation expectations will not fall,” he said in an email.

He predicts that Turkey’s higher minimum wage and possible election-delayed tax reforms will help annual inflation return to the 50% mark in the second half of the year.