Inflation Increased to 32.6% y/y in May due to Surges in Energy Prices
Bottom line: Turkish Statistical Institute (TUIK) announced May inflation figures on June 5. After hitting 32.4% annually in April, Turkiye’s inflation surged to 32.6% in May due to rising housing, water, electricity, gas and other fuel costs. We now assess Central Bank of Turkiye (CBRT) will likely hike the key rate during the MPC on June 11 due to adverse geopolitical developments, sticky domestic inflation, and hikes in energy prices after Iran conflict.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2015 – May 2026
Source: Continuum Economics
Turkish Statistical Institute (TUIK) announced May inflation figures on June 5. After hitting 32.4% annually in April, Turkiye’s inflation surged to 32.6% in May due to rising housing, water, electricity, gas and other fuel costs. It marked the highest reading since October 2025 demonstrating disinflation process is under pressure. According to TUIK’s announcement on June 5, education prices recorded the highest annual increase with 50.1% YoY followed by housing prices were up by 45.6%. Annual food and non-alcoholic beverages prices also soared by 34.9%. Prices rose at a slower pace across a number of categories, such as footwear and clothing, which came in at 14.1% YoY in May. Monthly inflation edged up by 1.7% in May while annual core inflation stood at 2.9% monthly and 30.4% annually.
Speaking about the print, the Treasury and Finance Minister Mehmet Simsek said that "Although geopolitical risks and volatility in energy prices continue to exert pressure on the inflation outlook, we have limited these effects with the steps we have taken." Central Bank of Turkiye (CBRT) Governor Fatih Karahan has said the central bank needs to focus on short-term inflationary impacts for now to hinder a deterioration in the inflation outlook, adding all options were on the table.
In its second Inflation Report of 2026 published on May 14, the CBRT hiked its end-year inflation target to 26% for 2026, 15% for 2027 and 9% for 2028. The regulator also revised its interim target upward to 24% for 2026 citing extraordinary updates to assumptions after the geopolitical shock.
Given the CBRT's 5% medium-term inflation target, we believe the CBRT must navigate interest-rate adjustments with caution, adopting a meeting-by-meeting approach due to adverse geopolitical developments, fragile pricing behaviour, stubborn prices and hikes in energy costs after Iran conflict. Under current circumstances, we assess CBRT will likely hike the key rate during the MPC on June 11 given risks.