Inflation in Turkey drops below 40% in May as Erdogan forms economic team

Turkey’s year-on-year inflation dropped to 39.59% in May, official data released on Monday showed, broadly in line with expectations after the government made natural gas free to offset price rises.   

Consumer prices increased 0.04% from a month earlier, the data showed. 

The country’s high inflation and an acute cost-of-living crisis pose major challenges for Turkish President Recep Tayyip Erdogan’s newly formed government, with local elections only 10 months away. Erdogan, who adamantly pursued a policy of cutting interest rates to boost economic growth despite a plunge in the Turkish lira and soaring prices, signaled a departure from his unconventional economic policy on Saturday by tapping Mehmet Simsek, a former economic czar who enjoys international credibility, as his new finance and treasury minister.

Turkey’s consumer inflation hit a 24-year high of 85.5% late last year before easing in the ensuing months, largely due to a favorable base effect stemming from lower annual price increases in comparison to the respective previous periods.

Speaking Sunday at his handover ceremony, Simsek reaffirmed the policy shift, saying the country had no choice but to return to rational economic ground. "A predictable Turkish economy will be the key to achieving the desired prosperity," he said, pledging structural reforms. 

The fall in annual inflation in May is largely attributed to the government’s decision to provide partially free natural gas as part of its campaign pledges ahead of the May 14 general elections. The Turkish Statistical Institute (TUIK) announced last week that it would resort to a "zero price" method for natural gas in its May calculation.

Prices in clothing, food and education drove the increase in consumer prices in May, rising respectively by more than 9%, 7% and 5% from the previous month, TUIK data showed on Monday.