Annual inflation nears double digits in Turkey amid hikes in taxes, food prices

Annual inflation nears double digits in Turkey amid hikes in taxes, food prices

Annual inflation nears double digits in Turkey amid hikes in taxes, food prices

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The inflation rate in Turkey rose by 1.82 percent in January, triggered by persistently high food costs and tax hikes, especially on alcoholic beverages and tobacco products, lifting the annual inflation rate to 9.58 percent, close to double digit levels and the highest since May 2014.  

According to data released by the Turkish Statistics Agency (TÜİK), the highest monthly increase was 9.6 percent in alcoholic beverages and tobacco products in January. The indices rose for food and non-alcoholic beverages by 4.28 percent, for miscellaneous goods and services by 2.71 percent, for health by 2.42 percent and for recreation and culture by 2.09 percent.

The only monthly fall was in clothing and footwear with 6.71 percent, according to the data revealed on Feb. 3. 

The government increased special taxes on cigarettes and alcoholic drinks at the beginning of the year.
The minimum fixed-tax rate on tobacco products was increased by 5.1 percent to 4.42 Turkish Liras and the fixed rate by 25 percent to 0.25 liras to mark the New Year. The minimum fixed-tax rate for beer was increased by 0.18 liras to 1.03 liras. The minimum fixed-tax rate for two liters of rakı was increased by 23 liras to 130.68 liras. 

Electricity prices were also increased by 6.8 percent as of Jan. 1. 

Finance Minister Naci Ağbal said the rising tobacco, alcoholic drinks and food prices, as well as the recent increase in the minimum wage, have pushed up the inflation rate in a televised interview on Feb. 3. 

“We hope to decrease the inflation rate in 2016 through a number of measures,” he noted on Turkish channel A Haber. 

2016’s main challenge 

Turkey’s Central Bank recently increased its inflation forecast rate by one point, from 6.5 to 7.5, for 2016, having kept its “5 percent target” for the following three years, as battling inflation was deemed to be this year’s main challenge. 

“The Central Bank will tell the government that a collective effort is needed to lower inflation, as the government has already been quite aware of this,” Central Bank Governor Erdem Başçı said on Jan. 26. 

Assumed inflation for food prices was revised upwards by the Central Bank from 8 percent to 9 percent for 2016 due mostly to the effects of minimum wage adjustments on costs and demand.

The cabinet has recently signed a decision allowing more meat to be imported in order to block speculative moves that are hiking prices.

“In the short-term, Turkey can increase and support productions in the basic spending items and maintain economic confidence that will enable the foreign exchange rate to become stable through several independent interventions of the Central Bank to keep the inflation rate in single-digits in the short-term. If the Turkish Lira sees further losses, the inflation outlook will become worse. In any case, the fight against high inflation will be the main theme of this year,” said ALB Forex Research Specialist Enver Erkan in a written note.