Despite Monthly Pressures and Risks Persist, Inflation Eased to 30.9% in March
Bottom line: Turkish Statistical Institute (TUIK) announced March inflation figures, and Turkiye’s inflation edged down to 30.9% despite inflationary risks. The moderate slowdown in March was supported by the sliding tax system and the normalization in food prices after Ramadan. Our average inflation forecast for 2026 remains at 28.4% due to fragile pricing behaviour, surging energy costs and stubborn food and housing prices. We think Central Bank of Turkiye (CBRT) will keep the key rate stable at 37% during the April 22 MPC meeting because of inflationary risks.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2015 – March 2026
Source: Continuum Economics
Turkish Statistical Institute (TUIK) announced March inflation figures on April 3. After hitting 31.5% annually in February, inflation cooled down to 30.9% y/y in March. The moderate slowdown was supported by the sliding tax system and the normalization in food prices after Ramadan.
According to TUIK’s announcement, education prices recorded the highest annual increase with 52% YoY followed by housing prices were up by 42.1%. Annual food and non-alcoholic beverages prices also soared by 32.4%. Prices rose at a slower pace across a number of categories, such as footwear and clothing, which came in at 7.2% YoY in February. Monthly inflation edged up by 1.9% in February while annual core inflation stood at 1.6% monthly and 29.7% annually.
The Turkish economy remains under pressure from regional friction involving Iran, which sparked a surge in energy and agricultural input costs. To shield TRY, the Central Bank of Republic of Turkiye (CBRT) has opted for an aggressive liquidity strategy, providing market funding at 40%, effectively bypassing its 37% benchmark rate. Besides, it is worth mentioning that fiscal authorities in Turkiye tempered the rise of fuel prices by activating a sliding tax system and absorbing the costs via lower special consumption tax (SCT) revenues. These interventions proved successful last month, as TRY lost only 1.3% of its value against the USD in March.
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 as adverse geopolitical developments, sticky domestic inflation and hikes in oil and gas prices after U.S./Israel attacks to Iran continue to dominate economic outlook. We think CBRT will keep the key rate stable at 37% during the April 22 MPC meeting because of inflationary risks.
We assess that inflation is likely to remain above the CBRT’s upper forecast band by year-end. Our average inflation forecast for 2026 stands at 28.4% due to fragile pricing behaviour, surging energy costs and stubborn food and housing prices.