The Stickiness of Services: IMF Warns of Unusual Inflation Dynamics in Türkiye

By Newsportal Desk | January 18, 2026

ANKARA – As Türkiye continues its grueling battle against high cost-of-living, a new deep-dive study by the International Monetary Fund (IMF) has highlighted a critical decoupling in the country’s inflation engine. The report, titled “Services Inflation and the Exchange Rate in Türkiye,” reveals that while goods inflation responds rapidly to currency fluctuations, services inflation has developed a stubborn, “unusual” inertia that threatens the pace of the national disinflation program.

The study, which IMF officials describe as the first comprehensive analysis focusing specifically on the divergence between services and goods in the Turkish context, arrives at a moment when the Central Bank of the Republic of Türkiye (CBRT) is navigating a delicate transition toward single-digit targets.

A Tale of Two Inflations: Goods vs. Services

The core of the IMF’s findings lies in the asymmetric behavior of different Consumer Price Index (CPI) components. Historically, Turkish inflation was seen as a monolithic block heavily influenced by the Lira’s value. However, the post-2021 era has shattered this uniformity.

According to the IMF, services inflation in Türkiye has exhibited far more “inertia”—the tendency for price increases to persist regardless of external shocks—than goods inflation. This persistence is described as “extraordinary” not just by Türkiye’s own historical standards, but also when compared to other emerging markets and global peers.

“The divergence we see since late 2021 is striking,” the IMF paper notes. “Services prices have become detached from the traditional exchange rate pass-through mechanisms that usually govern Turkish pricing behavior. This has led to a sharp rise in the relative price of services compared to goods.”

The 10-Point Shock Test

One of the most revealing parts of the analysis is the quantification of exchange rate sensitivity. The IMF’s econometric models estimated the impact of a hypothetical 10-percentage-point shock (depreciation) in the nominal exchange rate.

The results are stark:

• Goods Inflation: A 10-point currency shock triggers an immediate and sharp response, increasing goods inflation by approximately 5 percentage points. The study found that nearly 45% of a currency move is reflected in goods prices within just six months.

• Services Inflation: In contrast, the same 10-point shock results in only a muted 1-percentage-point increase in services inflation. The pass-through rate for services stands at roughly 20% over a six-month window.

While a lower sensitivity to currency shocks might sound positive, the IMF warns it is a double-edged sword. Because services prices do not fall or stabilize when the currency does, they create a “floor” for inflation that is difficult to break. This is particularly evident in rental services, which the IMF identifies as a primary driver of overall services stickiness.

Why Is This Time Different?

The IMF points out that prior to 2021, the gap between goods and services inflation was much narrower. The current “unusually sharp” rise in services prices suggests that factors beyond the exchange rate are now at play. These include backward-looking indexation (pricing based on past inflation rather than future targets), high inflation expectations, and strong domestic demand.

“The findings suggest that currency stability alone will not be enough to reach the inflation targets,” the report states. “When services inflation exhibits this much inertia, you need a broader set of complementary policies to break the cycle.”

Policy Implications for 2026

The IMF’s analysis serves as a subtle guide for Turkish policymakers. As the CBRT maintains a tight monetary stance, the report suggests that “price and income policies”—such as minimum wage adjustments and rent controls—must be aligned with forward-looking inflation targets to tackle the services ataleti (inertia).

Furthermore, the study indicates that because goods inflation is more sensitive to the exchange rate, a stable Lira has a significant “cooling effect” on the prices of tradable goods like electronics and clothing. However, the “invisible hand” of services—including education, healthcare, and dining out—remains resistant to monetary tightening, requiring a longer period of high real interest rates to suppress demand.

Looking Ahead

As of early 2026, annual inflation in Türkiye has dipped below the 35% mark, but services inflation remains elevated, often hovering 15 to 20 points above the headline figure. The IMF warns that if this structural divergence is not addressed, Türkiye risks entering a “high-inflation trap” where services prices continue to pull the overall CPI upward, even if global commodity prices and the Lira remain stable.

For investors and market observers, the message is clear: the “Lira-inflation” correlation is no longer the only metric that matters. To understand where Turkish inflation is headed, one must now look at the hairdresser, the landlord, and the restaurant owner—the actors currently holding the most inertia in the economy.

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