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Türkiye’s inflation softened to 1.7% in May as retreating oil prices, driven by growing hopes for a deal in U.S.-Iran talks, provided relief to the economy after consecutive months of unexpected shocks disrupted the disinflation trend earlier this year.
The annual rate continued to rise, however, edging up to 32.6% and offering only limited relief to policymakers ahead of the Turkish central bank’s Monetary Policy Committee (MPC) meeting on June 11.
In April, monthly inflation accelerated to 4.2%, driven by a 14.4% increase in energy prices, while annual inflation rose to 32.4%.
According to figures released by the Turkish Statistical Institute (TurkStat), food prices fell 0.5% in May, as a seasonal decline in fresh fruit and vegetable prices weighed on the overall food group. Meanwhile, transportation and housing costs rose 2% and 2.3%, respectively, among the three largest spending categories in the consumer basket.
The sharpest monthly increase was recorded in clothing and footwear, where prices jumped 11.3%, making the category the largest contributor to overall inflation during the month. Core inflation, which excludes energy, food and non-alcoholic beverages, alcoholic beverages, tobacco and gold, rose 2.9% in May, bringing the annual core inflation rate to 30.4%.
Producer prices, meanwhile, also showed a modest slowdown from the previous month, rising 2.8% in May, while annual producer inflation stood at 28.9%.
Treasury and Finance Minister Mehmet Simsek welcomed the May inflation data, pointing to lower food prices and a notable improvement in services inflation. The minister noted that annual services inflation slowed to 41.1%, an improvement of 10.1 percentage points from a year earlier, supported by rule-based pricing in education and easing rental inflation.
While geopolitical risks and volatility in energy prices continue to cloud the inflation outlook, Simsek said government measures have helped limit their impact.
"Although geopolitical risks and volatility in energy prices continue to put pressure on the inflation outlook, we have limited these effects through the steps we have taken," he said. "We will continue our policies in line with our goal of achieving lasting price stability."
The Central Bank of the Republic of Türkiye (CBRT) will convene its MPC next week, after holding the policy rate at 37% in two consecutive meetings, while continuing to fund the market through its costlier overnight channel at 40% since the start of the war.
During the presentation of the CBRT's latest inflation report, Governor Fatih Karahan signaled that the gap between the policy rate and the bank's effective funding rate would not be maintained indefinitely, while stressing that future policy decisions would remain data-driven, leaving the door open to a potential rate hike.
According to the CBRT's Survey of Market Participants conducted last month, respondents did not expect a rate cut and projected the policy rate to remain unchanged at 37% for at least the next two meetings.
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