In its Monthly Price Developments Report, The Central Bank of the Republic of Turkey (CBRT) has clarified the causes for the unexpected spike in the country's inflation rate, which was announced Tuesday.

According to the report, the depreciation of the Turkish lira was clearly felt in basic commodity prices during December despite the limited effect of domestic demand conditions. It was also noted that the recent hikes and the plunging Turkish lira played a decisive role in the inflation rate spike, along with the food and energy prices.

Recalling that consumer prices increased by 1.64 percent in December and annual inflation rose by 1.53 percentage points to 8.53 percent, the report underlined that the increase in annual inflation in food was caused by unprocessed food as stated in the meeting summary of the December Monetary Policy Committee (MPC), and the increase in annual inflation in energy was maintained in line with the increase in exchange rates and oil prices.

In addition, recent tax adjustments, particularly in tobacco products, have had a significant upward impact on inflation. In this period, annual inflation and core inflation indicators increased with the depreciating Turkish lira.

The annual changing rate of the H and I indexes in this period increased by 0.4 and 0.5 percentage points to 7.29 and 7.48 percent, respectively. Given the contribution of sub-groups to annual consumer inflation, it was observed that the contributions of food, alcohol, tobacco, energy and basic commodities increased by 0.49, 0.44, 0.33 and 0.22 percentage points, respectively, in comparison to the previous month.

The report also noted that service prices increased by 0.38 percent in December while and group annual inflation rose by 0.17 percent to 8.11 percent. At the same time, annual inflation decreased in the transportation category, maintained a horizontal level in communication and increased in other sub-groups over this period, while the prices in the transportation category decreased due to intercity road transport.

The increase in rents also gained momentum during this period, and the annual inflation rose to 9.30 percent. Accommodation prices have continued to decrease and prices of food services continued to rise in parallel with the outlook of the tourism sector in restaurant-hotel group.

The CBRT report said, annual inflation in basic commodities category increased by 0.84 percentage points to 6.77 percent in December, while annual inflation decreased in apparel and increased in other sub-groups.

It also revealed that while annual inflation fell sharply due to the slowdown in domestic demand in the apparel category, prices in durable goods, on the other hand, increased by 1.39 percent over the month with the depreciation of Turkish lira, and significant price increases were observed in all its sub-groups, mainly white goods (3.52 percent).

Increase in energy prices affects inflation

According to the same report, despite the limited effect of domestic demand conditions, the depreciation of the Turkish lira was felt strongly in basic commodity prices in December. Accordingly, energy prices increased by 2.15 percent during this period.

With the sharp rise in oil prices and a weakening Turkish lira, fuel prices rose by 4.81 percent and the increase in the cumulative price of the past four months in this group reached 18.51 percent.

Similarly, compared to the previous month, cinder gas and solid fuel prices increased by 2.17 percent and 3.53 percent, respectively. As a result, annual inflation in energy increased by 2.52 percentage points to 8.67 percent over the same period.