Services Inflation and the Exchange Rate in Türkiye
IMF Working Papers, January 16, 2026
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- Services Inflation and the Exchange Rate in Türkiye
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Bibliographic details
- Authors: Tara Iyer, Agustin Roitman, James P Walsh
- Published: January 16, 2026
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798229036955.001
Summary
- Inflation in Türkiye has been high since 2021.
- The paper investigates sources of this inflation and the impact of mitigating exchange rate volatility.
- Two main findings emerge:
- Significant divergence in inflation dynamics across CPI components since late 2021—services inflation has exhibited more inertia than goods inflation, a result that stands out in both historical and cross-country contexts.
- Exchange rate shocks are estimated to have a smaller impact on services inflation than on goods inflation; the peak services inflation response to a nominal exchange rate shock is estimated to be fairly muted, at just one-tenth the size of the shock.
- Since mid-2023, there has been an unusually sharp rise in the relative price of services, as goods inflation has been more sensitive to exchange rate movements.
- When inflation persistence—especially in services—is relatively high, inflation stabilization may require complementary policies to break inertia beyond a stable currency.
Key findings and statistics
- Divergence in CPI component dynamics emerged since late 2021.
- Services inflation exhibits greater inertia than goods inflation; persistence is generally broad-based.
- Rental services play an important role in services inflation persistence.
- Peak services inflation response to a nominal exchange rate shock: one-tenth the size of the shock.
- Noted period of behavior: since mid-2023, unusually sharp rise in the relative price of services.
Analysis of exchange rate effects
- Exchange rate shocks have a smaller estimated impact on services inflation relative to goods inflation.
- Goods inflation is more sensitive to exchange rate movements, explaining the relative price shift toward services since mid-2023.
- The muted peak response of services inflation to nominal exchange rate shocks underscores sectoral heterogeneity in pass-through.
Policy implications and recommendations
- Stabilizing the currency alone may be insufficient when services inflation persistence is high.
- Complementary policies are likely needed to break inertia in services inflation, including measures targeting rental services where relevant.
- Policies should account for the differential pass-through of exchange rate shocks across CPI components.
Subjects and keywords
- Subjects: Exchange rate adjustments, Exchange rate pass-through, Exchange rates, Foreign exchange, Inflation, Inflation persistence, Nominal effective exchange rate, Prices
- Keywords: Exchange rate adjustments, Exchange Rate Pass-Through, Exchange rates, Global, goods inflation, IMF working papers, Inflation, Inflation Inertia, Inflation persistence, inflation response, inflation stabilization, Nominal effective exchange rate, Services Inflation, Türkiye, VAR
Tara Iyer, Agustin Roitman, and James P Walsh. "Services Inflation and the Exchange Rate in Türkiye", IMF Working Papers 2026, 006 (2026), accessed 9/8/2026, https://doi.org/10.5089/9798229036955.001
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- Working Paper