Turkish inflation continues to rise, posing challenges for the economy

Despite a downward trend in inflation rates in many parts of the world, Turkey is grappling with soaring prices, which reached 64.8% annually in December. This figure marked an increase from 62% in November, falling just short of the 65.1% forecasted by economists. Conversely, the month-on-month inflation eased from 3.3% to 2.9%. The previous peak of 85.5% was recorded in October 2022. The devaluation of the Turkish lira has escalated import costs and diminished the remittances of foreign workers. This situation arose due to the contentious decision of Turkey's central bank to decrease interest rates, an initiative championed by President Recep Tayyip Erdogan, which was later reversed with interest rates climbing from 8.5% to 42.5%. Despite a 250 basis point increase during the last central bank meeting, analysts anticipate another 250 basis point hike in the forthcoming meeting on Jan. 25. Although inflation is projected to reach its peak in 2024, investors are showing interest in Turkish bonds as the central bank gains credibility. Nevertheless, achieving the central bank's 2024 inflation target of 36% is deemed challenging, with experts foreseeing a potential peak of 75% by mid-year.