Inflation in Türkiye eased to 42.12% on an annual basis in January, while monthly inflation surged to 5.03%, exceeding expectations, driven by a minimum wage hike and several new-year price adjustments, official data showed on Monday.
The annual consumer price index (CPI) compared with 44.38% in December and slowed for the eighth consecutive month, according to the Turkish Statistical Institute (TurkStat) data.
The monthly rise was up sharply from 1.03% in December and above market estimates of around 4.35%. The central bank, which launched an easing cycle in December, had warned of the expected temporary jump.
By sector, the biggest monthly price rises were in health, goods and services, and education and housing. On an annual basis, education, housing and health contributed to the rise last month, the TurkStat data showed.
Households' contribution fees for receiving health services in public and private hospitals rose by 233% and 543%, respectively, driving the 23.6% monthly increase in health prices.
Annual inflation has been falling since May, when it exceeded 75%, as tighter monetary and fiscal policies curbed overheating domestic demand.
Economists expected monthly inflation to be high due to the price increases on many products at the beginning of the year and the 30% increase in the minimum wage, which has an impact on the service and production sectors.
Treasury and Finance Minister Mehmet Şimşek on Monday said the monthly rise was due mainly to "seasonal effects," but managed prices determined in line with targets helped achieve the lowest January monthly inflation print in four years.
Şimşek vowed inflation would keep on falling, in a message on social media platform X.
"With the policies we have resolutely implemented, annual inflation in basic goods is at its lowest level in the last 38 months at 24%. Service inflation, on the other hand, has decreased by 27 points compared to last year, reaching 62.9%," the minister said.
"The decline in inflation will continue with our fiscal policy stance, the balancing of demand, and our supply-side measures."
The Central Bank of the Republic of Türkiye (CBRT) began cutting its interest rate from 50% in December and trimmed it again to 45% last month while pledging to maintain sufficiently tight policy to ensure continued disinflation.
"Although inflation exceeded expectations and core price trends increased significantly in January...(the bank) will likely proceed with a 250 bps rate cut" again in March, QNB economists said in a research note.
"However, if inflation exceeds the CBRT's expectations in the coming months, the central bank may slow down or even halt the ongoing rate-cutting cycle."
Shares in Turkish banks slid on Monday as concerns grow about a potential slowdown in interest rate cuts amid a global sell-off due to U.S. President Donald Trump's latest tariffs.
The main banking index was down 3.15% at around 12:50 p.m. local time after dropping nearly 5%, while Turkish equities fell 1.76%.
"The higher-than-expected inflation data raises concerns that the interest rate cut process could be delayed, triggering a sell-off in the banking index," Yunus Yenikalaycı, equity research specialist at Gedik Yatırım, said.
Serhat Başkurt, head of algorithmic trading at ALB Yatırım, noted concerns that the additional customs duties imposed by the U.S. on imports from Mexico, Canada and China will negatively impact global economic growth and ignite the trade wars.
"The sell-off in global markets, the higher-than-expected inflation, and the uncertainty surrounding the interest rate cut process were the main reasons for the sell-off in the banking sector," Başkurt added.
The central bank will update its inflation forecasts in a news conference on Friday this week.
While most taxes and fees have been updated in line with the standard inflation coefficient for 2025, the government limited a hike in fuel tax this month to 6% as part of its disinflation efforts.
William Jackson, chief emerging markets economist at London-based Capital Economics, said in a policy note that a jump in monthly inflation was "always likely" given the minimum wage hike around the turn of the year.
The net monthly minimum wage has been raised by 30% to TL 22,104 ($600), beginning from Jan. 1.
The government expects inflation to continue declining to stand at around 20% at the end of the year, according to officials.
Monday's data showed the domestic producer price index was up 3.06% month-over-month in January for an annual rise of 27.20%.