Economy High costs push up Turkish inflation in January By William Sellars February 3, 2025, 2:54 PM Shady Alassar/Sopa Images via Reuters Connect The Galata Bridge in Istanbul. The 5% inflation rise was fuelled by steep increases in the cost of restaurants, hotels and cafes, rent, education and health services Inflation increases by 5% Higher costs for hospitality Rise in state taxes and levies A sharp jump in costs may hinder the Turkish government’s hopes of delivering further interest rate cuts, with inflation in the services sector, housing costs and food combining to pressure the consumer price index. Inflation rose by just over 5 percent in January, according to data from state statistics agency Turkstat. This was fuelled by steep increases in the cost of restaurants, hotels and cafes, rent, education and health services, which rose by between 6.5 and 23 percent in the month. While year-on-year inflation was at 42 percent, down from 44, this was still higher than many forecasts and weakened the case for a further round of interest rate cuts by the Central Bank of Turkey. The central bank had reduced its main lending rate by 5 percent over the past two months to 45 percent on the back of falling inflation and the anticipation of a further slowing in price rises. One factor driving up the January inflation figure was the traditional rise in state taxes and levies, with increased charges for many services announced at the start of January. Many of these increases flowed on to the services sector, according to economist Mustafa Sönmez, pushing up the costs of health and education among others. “However what one must pay attention to, are hardened issues such as rent and food costs, which are not coming down,” he told AGBI. “This is a warning sign for those who claim they have broken the back of inflation.” It was not just consumer inflation that rose above expectations in January. Wholesale inflation also eased on an annual basis, falling to 27.2 percent, down from 28.52 percent at the end of 2024, but with a monthly increase of just over 3 percent. Turkey cuts interest rate by 250 basis points Credit and debit card use rises steeply in Turkey Turkey’s exports to US surge but tariffs are a threat For the key manufacturing sector, the monthly increase was 3.25 percent, with inflation cited by the Istanbul Chamber of Industry (ISO) in its January purchasing managers index report as being one of the core factors in a fall in output for the month. “Higher input prices reflected a range of factors, including rising costs for raw materials and fuel, increased wages and currency weakness,” the ISO report said. The central bank will have to weigh sticky inflation against still high borrowing costs when it meets in early March to review its rates policy, said Sönmez. “I believe that February’s inflation will be high as well, so the central bank will also look at next month’s inflation data when it makes its decision on March 6,” he said. “It will look at annual inflation currently at 42 percent and its policy interest rate of 45 percent. However, there will be pressure from the government to have a rates cut of around 2.0 to 2.5 percent regardless of the data.”
