Turkey's February CPI year-on-year increase unexpectedly rose to 67.1%, reaching a 15-month high.

Driven by a significant increase in the minimum wage this year, Turkey's February Consumer Price Index (CPI) rose by 67.1% year-on-year, higher than January's 64.9% and economists' widely expected 66%, reaching a new high in 15 months. The February CPI month-on-month increase, which is closely monitored by the Central Bank of Turkey, fell from 6.7% in January to 4.5%, but still exceeded economists' expectations. The Central Bank of Turkey is closely monitoring the accelerating trend of inflation and remains vigilant after ending interest rate hikes. Policymakers expect the CPI year-on-year increase to peak at over 70% in May. To curb inflation, the Central Bank of Turkey has raised interest rates eight times in a row since June 2023, raising the benchmark interest rate from 8.5% to 45%. The Central Bank of Turkey kept the interest rate unchanged at 45% last month. However, the persistently high inflation rate means that Turkey's real interest rates are far below zero. Piotr Matys, Senior Currency Analyst at InTouch Capital Markets, said, "Some may argue that with real interest rates negative, monetary policy is not tight enough to constrain inflation within the official target of 5%, nor stabilize inflation expectations." He believes that Turkey's inflation level is "astonishingly high." In addition, data shows that the volatile core CPI, excluding food and energy, increased from 70.5% in January to 72.9% in February; the year-on-year increase in food prices, which accounts for about a quarter of the CPI basket, increased from 69.7% in January to 71.1%. Newly appointed Central Bank of Turkey Governor Fatih Karahan stated that raising the minimum wage is the biggest risk facing Turkey's inflation outlook. The minutes of the Central Bank of Turkey's policy meeting last month specifically mentioned the "strong rise in prices of unprocessed food" as a major driving factor behind the price increase. Turkish Treasury and Finance Minister Mehmet Simsek stated before the inflation data was released, "We are still far from price stability, but that is our goal." "The month-on-month inflation rate will return to trend in March." It is reported that former Central Bank of Turkey Governor Hafize Gaye Erkan resigned suddenly in early February, and Turkish President Erdogan quickly appointed Deputy Governor Fatih Karahan as the new Governor of the Central Bank of Turkey. Data shows that Fatih Karahan has been a member of the Central Bank's Monetary Policy Committee since July last year, and previously served as Chief Economist at the New York Fed and Amazon. Turkish officials emphasize that Hafize Gaye Erkan's resignation was for personal reasons and does not mean any change in economic policy direction. The Turkish Ministry of Treasury and Finance stated in a statement that Hafize Gaye Erkan's decision was completely voluntary and made by herself, and added that Erdogan has full confidence and support for her economic team and plans. Currently, investors are focused on finding clues to see if Turkey's policies can be sustained. The fact that Finance Minister Mehmet Simsek remains in his position is comforting to some people.