Türkiye’s inflation eased slightly more than expected in February, official data revealed on Friday, following massive earthquakes that jolted its southeastern region just under a month ago.
Yet, prices continue to rise on a monthly basis, driven by higher prices of food and services.
The annual consumer price index (CPI) dropped to 55.18% in February, as per the Turkish Statistical Institute (TurkStat), driven mainly by the so-called base effect, marking a fourth straight month of slowdown and the lowest level in a year.
The reading, compared to 57.7% in January and 64.3% in December, marks a notable regress from the peak of 85.5% – a 24-year high – registered last October.
Surveys expected the annual February reading to come in at around 55.5%.
Month-over-month, inflation rose by 3.15%, as per data, after a 6.65% surge in January, mainly due to higher food prices and price hikes in education and services.
Although it marked the second-highest February reading since 2000, it came in lower than market expectations for a 3.4% increase on a monthly basis.
The biggest monthly rise in prices was in the food and nonalcoholic drinks sector, which was up 7.36%, while prices of education and restaurant and hotel items climbed 5.69% and 4.07%, respectively.
"Overall, annual inflation maintained a downtrend in February as widely expected, and is likely to decline further until May mainly due to strong base effects, though currency stability will remain key for the outlook," the Dutch banking giant ING said in a blog.
The Turkish lira traded at 18.8920 after the data, unchanged from its close on Thursday. The currency has been mostly flat since the summer.
The government is preparing to ramp up spending to rebuild huge swathes of the southeast after the 7.7 and 7.6 magnitude earthquakes on Feb. 6 left more than 200,000 buildings either completely collapsed or damaged to the point where they require immediate demolition.
The disaster killed more than 45,000 people and left more than 2 million people homeless.
The spending for post-quake recovery could lift consumer spending and industrial production, two key indicators of economic growth, which could also increase inflationary pressures.
President Recep Tayyip Erdoğan pledged a swift campaign and has said the devastated regions would be rebuilt within a year.
The state statistical institute said “field prices” could not be collected last month in the quake-hit provinces. Instead, they were compiled with "workplace barcode scanner data" and "price data compiled from the Internet via web scraping techniques."
The domestic producer price index was up 1.56% month-over-month in February for an annual rise of 76.61%, the data revealed.
It marked the lowest reading since November 2021, implying that there are still high, but improving, cost-push pressures in comparison to previous months, ING said.
Economists and government officials expect the earthquakes to cost more than $50 billion (TL 945.14 billion) and shave one to two percentage points off the country's economic growth this year.
The quakes and their aftershocks caused an estimated $34 billion in damage, the World Bank said this week.
The estimate does not include the eventual costs of reconstruction that are "potentially twice as large," the Washington-based institution said.
Government officials and economists have also said prices of goods and services, including food and housing, will fall in coming months by far less than previously expected due to disruptions caused by the quakes.
The government has prioritized low-interest rates to boost exports, production, and investment and create new jobs as part of a new economic program. Dubbed the Türkiye Economy Model, the program aims to lower inflation by flipping the country’s chronic current account deficit to a surplus.
Last week, the Central Bank of the Republic of Türkiye (CBRT) lowered its policy rate by 50 basis points to 8.5% to support growth after the earthquake, saying the cheaper borrowing cost would bolster recovery efforts.
"The CBRT hinted that interest rate cuts will not continue as a series, while we can expect further macro-prudential measures to maintain favourable financial conditions with the objective of minimising the effects of the recent earthquakes," ING said.
Before the disaster, inflation had been expected to keep falling to around 35%-40% by June. However, it is expected to remain above 40%, heading into presidential and parliamentary elections, scheduled for May 14.
