by Burak Akinci
ANKARA, June 27 (Xinhua) -- Türkiye's annual inflation has exceeded 75 percent, the highest in the past 18 months. While officials suggest this may represent the peak before a potential easing of prices, experts caution that the high cost of living is likely to linger.
Türkiye's Treasury and Finance Minister Mehmet Simsek, who took on the challenging task of overseeing a comprehensive recovery program in June 2023, implemented a tighter monetary policy and declared that the "worst is over" as consumer prices reached what is believed to be a peak in May.
Simsek reversed Ankara's low interest rate policy that favoured growth over price stability, implementing stringent fiscal measures.
This move attracted hard currency, revitalized the central bank's low reserves, and helped stabilize the weakened national currency.
On Tuesday, Simsek said on social media platform X said Türkiye is on the verge of a "sharp decline in inflation," predicting that it would slow to as low as 40 percent in September and help bring more international investment needed for the country's recovery.
However, economists said that while year-on-year inflation may drop, monthly rises will persist, thereby continuing to strain consumers financially.
"Monthly inflation is projected to increase by 2.5 percent each month. What will drop is the year-on-year inflation rate. Due to significant price hikes in June 2023, there will be a drop in annual inflation from an arithmetic perspective," Mustafa Sonmez, an Istanbul-based economist, told Xinhua.
"Prices are consistently rising, impacting consumers. We will not see a decrease in prices; instead, they will continue to rise while most households struggle to make ends meet due to stagnant wages," this analyst said.
Since the summer of 2023, Türkiye's central bank has implemented aggressive monetary tightening to cool the economy and vowed to "do whatever it takes" to prevent the inflation outlook from deteriorating.
The logic behind the Turkish government's disinflation strategy is to make borrowing more expensive so that people have less money to spend. In addition, people are also encouraged to save more.
But on the other hand, policymakers are reluctant to hike pensions and wages of millions of retirees and low-income earners this summer, citing concerns they would help accelerate inflation.
The year-end annual inflation rate of the central bank stands at 38 percent. Sonmez said that this rate is still very high on a global level.
"For inflation to not be a problem, it should decrease to single digits," he added.
Senol Babuscu, a professor of finance from Ankara's Baskent University, echoed his remarks.
"Inflation is expected to slow down, however, that doesn't mean prices are going to be falling. They will just be rising less quickly," he said to Xinhua.
There's an important difference between inflation increasing more slowly, what is called disinflation, and inflation reversing itself, which would lead to prices coming down, he explained.
But as wages are not expected to keep pace with inflation, consumers are continuing to struggle in reality, the expert emphasized.
Meanwhile, Türkiye's ruling Justice and Development Party is expected to submit soon a new tax reform package to parliament as part of a series of austerity measures to fight runaway inflation.
The reform package is part of a concerted effort to enhance and develop Türkiye's fiscal discipline, guaranteeing a more equitable tax system, party officials said.
However, strict tax law compliance, government inspections and more expensive loans have burdened small business owners.
"Small businesses are struggling with financial challenges," Bengi Vural, a cosmetics shop owner from Ankara, complained.
"It has become very difficult to keep up with the economy and anti-inflation measures," the shop owner said. ■
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