Turkey Raises Energy Prices

Turkey raised electricity and natural gas prices by as much as 25% for households, as a surge in global energy costs strains the government’s subsidy program.

The increases, announced by the energy regulator on Friday evening, apply across all user groups and include a shift to consumption-based pricing for households, according to a statement. Earlier on Friday, Bloomberg reported that authorities were preparing to raise energy prices as soon as this month.

Electricity prices for the public and private services sector were lifted by 17.5%, and by 5.8% for industrial users. Natural gas prices were raised by an average of 18.6% for industrial consumers and 19.4% for electricity producers.

The Turkish government has for several years subsidized electricity and heating bills for households. Higher utility prices risk complicating the country’s disinflation program, which is a top priority for policymakers after years of soaring costs.

Annual inflation slowed more than expected to 30.9% in March, but economists expect renewed pressure in the coming months.

The immediate impact of higher oil prices on Turkish inflation is limited because fuel makes up only about 3% of the basket, wrote Selva Bahar Baziki of Bloomberg Economics. “The bigger threat will come from second-round effects, as firms pass higher energy costs as well as currency weakness into prices,” she added.

“If oil prices remain at current levels, the total cost of the increase to Turkey’s budget could be around 620 billion liras ($14 billion) until the end of the year,” Energy Minister Alparslan Bayraktar said late last month.

The country has also been constraining gasoline prices through tax adjustments, most recently reinstating a sliding-scale mechanism that cuts fuel taxes to “significantly limit” the impact on consumer inflation, Turkish central bank economists wrote in a report.