Annual inflation in Türkiye registered a sharp drop in July as anticipated, official data showed on Monday, as the momentum of what is expected to be a sustained slide gathered pace, while education, housing and hotel prices continued to surge.

The consumer price index (CPI) eased to 61.78% last month, just below expectations, according to data from the Turkish Statistical Institute (TurkStat).

It marks the steepest drop in nearly two years and the second consecutive fall after inflation eased to 71.6% in June from the cyclical peak of 75.4% in May.

Monthly price growth, the Central Bank of the Republic of Türkiye's (CBRT) preferred gauge, rose to 3.23%, also below expectations, according to the data. In June, monthly CPI inflation was 1.64%.

Treasury and Finance Minister Mehmet Şimşek said temporary factors caused the monthly inflation rise, adding that the inflation fall will be felt more in the period ahead as a result of the government's medium-term economic program.

The median forecast of economists surveyed by Bloomberg and Reuters was for an annual reading of 62% and 62.1%, respectively. The latter estimated monthly inflation at 3.45%.

The annual inflation drop had been expected, mainly due to base effects. Officials and the central bank had earlier signaled they anticipated a temporary uptick in the monthly readings due to adjustments in administered prices.

"Annual inflation is falling," Şimşek said on the social media platform X.

"We continue to get positive results in all areas of our program, whose main objective is disinflation," he noted.

"The decrease in inflation will be felt more in the coming period."

In an interview on July 26, CBRT Deputy Governor Cevdet Akçay told Reuters the bank expected a burden of some 1.5 points on July's monthly inflation due to adjustments in administered prices and taxes.

Economists had said mid-year price rises in alcoholic beverages and tobacco products, as well as rises in energy prices and tax adjustments to fuel, were likely to contribute to the monthly inflation spike.

Education, housing, health, hotels and restaurants saw the biggest annual price increases.

Education prices rose 104.5% from a year ago, followed by housing, which accounts for rises in utilities, at 98.48%, and restaurants and hotels at 76.04%.

Housing led monthly price increases at 8.08%. Alcoholic beverages and tobacco saw an increase of 5.84%, while clothing and footwear recorded a decrease of 2.58%.

Core inflation, which strips out volatile items such as food and energy, showed that annual gains eased to 60.2% from 71.4% in June.

The central bank has hiked its policy interest rate by 4,150 basis points since June last year and said it is monitoring inflation risks, vowing to tighten further in the case of a significant deterioration in inflation.

The bank kept borrowing costs unchanged at 50% for a fourth consecutive month in July.

It sees disinflation being established in the second half of the year, forecasting an end-year rate of 38% due to a tight monetary stance, moderation in domestic demand and real appreciation of the Turkish lira.

Vice President Cevdet Yılmaz the government estimates inflation would fall toward the low 50s in August and gain further downward momentum in September.

"While combating inflation, we are also considering all other balances in the economy. Our goal is to enhance predictability in the economy by accelerating structural reforms, in addition to sustainable and balanced growth, employment and export increases, a decreasing current account deficit, and our strict public fiscal policy," Yılmaz wrote on X.

"Our aim is to bring our country back to single-digit inflation by 2026," he noted.

"We will continue to resolutely implement our program to minimize the increase in the general level of prices, strengthen our economy's resilience against global developments and permanently enhance social welfare."

CBRT Governor Fatih Karahan is set to present the bank's fresh inflation projections this Thursday.

Tightening financial conditions and monetary policy is set to continue contributing to the disinflation path, Istanbul-based Bürümcekçi Consulting said in a research note, but the support from fiscal policy measures will be less than expected.

"We do not expect a change in policy rates in August and think they will remain at 50% for a while longer," it said.

Inflation traditionally eases during summer in Türkiye, as energy consumption falls and tourism brings in foreign currencies.

The domestic producer price index was up 1.94% month-over-month in July for an annual rise of 41.37%, the TurkStat data showed.

"The large fall in headline inflation in Türkiye in July will provide some comfort to the central bank that the disinflation process remains on track," said Nicholas Farr, emerging Europe economist at London-based research group Capital Economics.

But, he added, "It will take time for policymakers to be fully convinced that they can begin easing monetary conditions.

"We maintain our forecast for the first interest rate cut to arrive in 2025, a bit later than most others expect."