Turkey’s inflation rate fell more than expected in March, marking the tenth consecutive month of decline. However, economic risks persist due to domestic political uncertainties and the impact of newly announced U.S. tariffs.
According to the Turkish Statistical Institute, annual inflation dropped to 38.1% in March, down from 39.1% in February, beating analyst expectations of 38.9%. This represents the lowest level since December 2021.
Price increases slowed across several sectors, including footwear and clothing, which saw inflation decline to 14.8% from 20.8%. Transport inflation eased to 21.6% from 23.4%, while household furnishings saw a slight drop to 32.4% from 33.6%. Other categories, such as healthcare, hospitality, and recreation, also experienced slower price growth.
However, food and non-alcoholic beverage inflation rose to 37.1% from 35.1%, reflecting ongoing cost pressures in essential goods. Additionally, month-on-month inflation accelerated slightly, rising 2.5% in March, up from 2.3% in February.
Despite the downward trend, Turkey’s inflation remains significantly higher than in most other economies. The Central Bank of the Republic of Turkey has responded by cutting interest rates, lowering its key rate by 250 basis points to 42.5% in early March.
Future inflation risks include the new U.S. 10% baseline tariff, which could drive up costs. The central bank now faces critical decisions, balancing economic stability with potential inflationary pressures. Previously, when inflation soared, the central bank pursued rate cuts—a policy favored by President Recep Tayyip Erdoğan—despite it being contrary to conventional economic strategies. However, after this approach weakened the lira and worsened inflation, the central bank reversed course and began raising interest rates.
With external and domestic challenges looming, Turkey’s monetary policymakers will need to tread carefully in the months ahead.
