Treasury and Finance Minister Nureddin Nebati on Wednesday said Türkiye had gained good momentum, as he stressed a moderation in inflation that has been stressing consumers.
“We have broken very serious inertia related to inflation, we have caught a good momentum. Inflation has begun to fall very seriously. Citizens will have felt these improvements more in their daily life,” Nebati told an interview with Anadolu Agency (AA).
The coronavirus pandemic and Russia’s invasion of Ukraine have stoked inflation around the world, spearheaded by soaring food, energy and commodity prices.
Consumer prices in Türkiye have moderated over the last two months after hitting a 24-year high in October and inflation in December decelerated at its steepest pace in more than a quarter century.
Annual inflation fell to 64.27% last month from the 84.39% reported in November. The decline was driven mainly by the so-called favorable base effect and marked a second straight fall after inflation hit a peak of 85.5% in October.
The decline is expected to become more pronounced in the first quarter of this year and is expected to drop to as low as 40% by mid-2023.
“The fall of inflation in December enabled the inertia in society to be broken,” Nebati said. “In 2022, inflation rose in every country in the world. There is a complete recovery in all macroeconomic indicators in Türkiye, except for inflation.”
The minister stressed Türkiye has been one of the countries most affected by the crisis caused by Russia’s invasion of Ukraine, and also noted the unprecedented volatility in the foreign exchange rate prior to the war that he said was incompatible with macroeconomic realities.
The Turkish lira depreciated some 44% against the U.S. dollar in 2021, most of it during the high December volatility. The lira depreciated some 30% in 2022 but held mostly stable in the last quarter, which has helped temper the pace of price increases.
Nebati said the increase in the exchange rate had caused prices in Türkiye to increase at a rapid pace. He stressed that the volatility back in December 2021 had triggered uncertainty and saw prices being arranged according to foreign exchange rate expectations.
This eventually resulted in a serious increase in inflation, before it deteriorated even further after Russia launched its invasion of Ukraine in February 2022, according to Nebati.
He noted that the June, July and August periods of every year are marked by a fall in food prices, mobility in tourism and increased foreign exchange inflows, but stressed that was not the case last year due to the war.
President Recep Tayyip Erdogan last month said inflation would go “upside down” in the coming months and pledged to free Türkiye from the cost-of-living “scourge” in 2023.
His government tripled the minimum wage in the past year, raised state salaries and hiked pensions for millions to ease the economic pressure on households.
The minimum wage has been increased by 55% for 2023 and Erdogan also announced a measure that would allow more than 2 million people to retire early. He said the minimum wage may be hiked again throughout the year if necessary.
The government has endorsed low interest rates to boost exports, production and investment and create new jobs as part of an economic program, eventually aimed at lowering inflation by flipping the country’s chronic current account deficit to a surplus.
Last year, the country’s central bank slashed its benchmark policy rate by 5 percentage points to 9%, citing the signs of economic slowdown.
Erdogan says high rates cause inflation and he had called for single-digit rates by end-2022. He has said the government’s new economic model is expected to yield results in the new year.
The government last year introduced several relief measures to help cushion the fallout from inflation, including a cap on rent increases, reduced taxes on utility bills and the unveiling of a major housing project for low-income families.
"As the Ministry of Treasury and Finance, we have taken all the macro-economic measures that we needed to take. A decision we make in the economy does not have an effect in the morning, a certain time is required. During this time, the fall in inflation in December enabled the inertia in society to be broken," Nebati said.
"The high rate of decline in December will reflect positively on micro indicators and on citizens' daily life, they will have felt these improvements more in a few months."