Turkey Sees First Inflation Slowdown Since Iran War Began

In June, Turkey experienced a slowdown in its annual inflation rate for the first time since the outbreak of the Iran war, as the impact of energy shocks that had pressured its oil and gas-import-dependent economy began to diminish.

Data from the Turkish Statistical Institute revealed that the consumer price index rose by 32.11% year-on-year in June, down from 32.61% in May. Monthly inflation also decelerated to 0.99% in June, following a 1.71% increase in May.

This June reading ended two consecutive months of accelerating inflation, which had been driven by rising energy costs after the effective closure of the Strait of Hormuz during the conflict.

The International Energy Agency notes that Turkey's reliance on natural gas increased alongside its oil and gas imports, leaving the economy more vulnerable to fluctuations in global energy prices.

According to the U.S. Energy Information Administration, Turkey imports nearly all of its oil and petroleum liquids, with domestic production covering less than 9% of demand in 2022. Historically, Turkey has depended on natural gas imports to satisfy local consumption.

In its second inflation report for 2026, the Central Bank of Turkey linked the regional war and rising energy and transportation costs, stating that a potential closure of the Strait of Hormuz poses a risk to global energy supplies. Despite some easing, oil and natural gas prices remain significantly above pre-war levels.

During a presentation of the May inflation report, Central Bank Governor Fatih Kara Han said that Middle East tensions starting in late February 2026 caused negative supply shocks that became a major factor in recent inflation trends. He noted that annual energy inflation rose by 19 percentage points to 47% within two months due to oil and natural gas prices.

Monetary Policy Under Pressure

The inflation slowdown occurs amid pressure on monetary policymakers from businesses and banks to ease tight monetary conditions. This comes after interest rates were held at high levels for an extended period even as inflation reduction slowed.

At the latest Monetary Policy Committee meeting on June 11, the Central Bank of Turkey maintained the one-week repo rate at 37%, the overnight lending rate at 40%, and the overnight borrowing rate at 35.5%.

The bank stated that the core inflation trend, which partly rose in April due to energy prices, slightly declined in May. However, it emphasized that energy prices remain volatile and elevated amid geopolitical developments.

In May, the Central Bank raised its year-end 2026 inflation forecast to 26%, compared to 15% at the end of 2027 and 9% at the end of 2028. It reaffirmed that the tight monetary stance will continue until price stability is achieved.