Turkey has lowered the value-added tax (VAT) on electricity used for residential and agricultural irrigation purposes and readjusted the electricity tariffs for low-consumption households, President Recep Tayyip Erdoğan announced on Monday.
Put into effect as of Tuesday, the move comes as part of efforts designed to ease the pressure on households and businesses affected by high energy bills amid soaring inflation.
In a televised address following a Cabinet meeting, Erdoğan reiterated the government’s determination to solve the inflation problem rapidly, saying Turkey would see the consumer prices largely under control by summer.
The annual consumer price index (CPI) soared to a 20-year high of nearly 50% in January. In response, the government hiked the monthly minimum wage by 50% and raised administered prices this year, including gas, electricity, road tolls and bus fares.
“By the summer months, we will have brought the inflation problem, which has been plaguing our nation in daily life, under control to a great extent,” Erdoğan said.
The inflation data for February due on Thursday is expected to show a rise to above 50%, according to surveys, as rising food and energy prices continue to push prices higher.
Turkey last month also cut VAT on food to 1% from 8% to fight inflation, which economists expect to lower annual inflation by 150 basis points in two months.
Erdoğan said the authorities readjusted the level under which higher electricity tariffs for households using more energy kick.
The monthly limit has been increased to 240 kilowatt hours (kWh), up from the 210 kWh level that was set as of February after it was revised upward from 150 kWh.
Energy prices were raised by more than 50% for many homes and as much as 127% for businesses and high-consumption households as of January.
Under the new charges after the tax cut, households will be subject to pay TL 1.26 per kWh for as much as 240 kWh per month, and TL 1.89 above that limit.
Earlier charges saw households being subject to pay TL 1.37 and TL 2.06, respectively.
The government will grant state subsidies to 4 million households in the country of more than 84 million people to help with high natural gas and electricity bills.
Civil society organizations will no longer pay the higher energy tariffs that apply to businesses, while some small businesses will also be able to benefit from readjusted tariffs.
Turkey’s inflation has surged since last fall amid soaring global commodity and energy prices and as the lira weakened after the central bank in September embarked on an easing cycle, which saw its policy rate being slashed by 500 basis points to 14%.
Prices have soared due to the country’s dependence on imports of energy, raw materials and many food supplies.
The lira has been broadly stable since the start of the year following a 44% decline in 2021 and has been hovering just below 14 against the United States dollar,
It briefly topped the level over risks amid Russia’s military intervention in Ukraine. The currency was down 0.5% on Tuesday and traded at 13.91 against the dollar as of 3 p.m. local time (12 p.m. GMT).
The authorities have been pursuing a new economic policy of low-interest rates to boost credit, exports and investments, saying it would help the country weather inflation.
Erdoğan says the policy will also eventually help Turkey solve its chronic current account deficit problem and contribute to stabilizing the lira.
The median estimate of 14 participants in a Reuters poll sees February inflation hitting 52.95%, in a range of 51.9% and 55.40%.
The median estimate for the monthly CPI was 3.80%, with predictions ranging between 3.1% and 5.50%.
In Istanbul, home to around a fifth of the country’s population, retail prices jumped 4.4% month-over-month in February for an annual rise of 55.32%, the most in two decades, the Istanbul Chamber of Commerce (ITO) said on Tuesday.
Wholesale prices in the city jumped 3.38% from November for an annual rise of 58.59%, ITO said.
Russia’s invasion of Ukraine has also raised concerns of further inflationary pressure in Turkey, an importer of oil, natural gas and grains, the prices of which have surged due to the conflict.
Economists see continued upward pressure on the producer price index (PPI) after it exceeded 90% in January.
Separately, the price of natural gas used for electricity production has been increased by 18.3% for March, while gas prices for households and industrial sites remained unchanged, the state-run pipeline company BOTAŞ said on Tuesday.
