(Bloomberg) -- Turkey’s inflation rate rose for a fifth straight month, edging closer to 70% despite a series of aggressive interest-rate hikes.

Consumer inflation quickened to 68.5% in March, slightly less than expected by analysts but up from 67.1% in February. The median estimate in a Bloomberg poll of economists was 69.1%.

Services, education and food were among the key contributors. Core inflation, which strips out volatile items like food and energy, quickened to the highest on record to 75.2%, up from 72.9% in February. 

Monthly inflation — policymakers’ preferred gauge — slowed to 3.16% from 4.5% the previous month and recorded the lowest reading since December. 

Istanbul-based economist Haluk Burumcekci said data showed that deterioration in pricing following the sharp hike in minimum wage at the start of the year as well as stickiness in services continued. “We think that after inflation accelerates to around 75% by the end of May, it’ll slow to 45% by the end of 2024 should the exchange rates, wages, managed prices and commodity prices not face any other shocks,” he said. 

The central bank sees inflation ending this year at 36% with an upper band of 42%, according to its latest projections.

The data comes after the central bank surprised markets by raising its benchmark interest rate to 50% in late March, amid the deteriorating inflation outlook and increased demand for hard currency. The bank has vowed to maintain a tight stance until prices show visible signs of cooling. 

The lira was trading 0.1% higher against US dollar at 11:17 a.m. Istanbul time on Wednesday, and is set for a third day of straight gains. The currency was the worst performer across emerging markets last month, weakening 3.5% against the US dollar. Turkey’s government bonds also extended gains after Wednesday’s data.

What Bloomberg Economics Says...

“Turkey’s lower than expected March inflation reading is nothing more than temporary relief, with the annual rate still on course to hit 73% by May. With risks tilted to the upside, we expect the central bank to manage any deterioration in the price outlook with tighter policy. The exact action policymakers take will depend on the April data flow, including likely revisions to fiscal policy.”

— Selva Bahar Baziki, economist. Click here to read more.

President Recep Tayyip Erdogan suffered an unprecedented defeat in local elections on Sunday, with Turkey’s cost of living crisis contributing to the opposition winning in key cities such as Istanbul and Ankara.

With elections out of the way, investors are watching for further signs of continuity in monetary policy and stronger fiscal discipline. Deutsche Bank AG analysts are particularly looking for any potential adjustments to energy tariffs and fiscal consolidation steps, which could impact inflation’s trajectory.

Shortly after the data release, Finance Minister Mehmet Simsek said that fiscal policy would also be tightened with control over government spending, excluding costs related to last year’s deadly earthquakes. This, together with monetary policy tightening, “will anchor inflation expectations and contribute to the disinflation process,” he said on social media platform X. 

“We will do whatever it takes until we achieve our primary aim of price stability,” he added. 

Conceding defeat after Sunday’s vote, Erdogan signaled he would stick to the orthodox economic program led by the finance minister. 

“We have implemented our medium-term program with determination. We have stayed away from populist steps that would put a burden on our country, nation and future generations,” the president said. “We will begin to see the positive results of our economic program, led by improvements in inflation.”

--With assistance from Tugce Ozsoy.

(Adds with Bloomberg Economics quote, updates analyst comment, latest market data.)

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