Turkish Inflation Rates Surpass Expectations

By Nevzat Devranoglu

ANKARA (Reuters) – Turkish inflation rose unexpectedly to 47.09% annually and 2.24% monthly in November, according to official data released on Tuesday. This increase may diminish the likelihood of an interest rate cut anticipated later this month.

Food and non-alcoholic drink prices surged by 5.1% compared to the previous month, reflecting the ongoing challenges the central bank faces in curbing years of elevated inflation. Health-related prices also increased by 2.69%.

A Reuters poll had forecasted the consumer price index inflation rate to decrease to 46.6% on an annual basis, with a monthly figure of 1.91%, largely driven by food and medicine costs.

Despite being higher than expected, the annual inflation for November represented the lowest level since mid-2023, down from 48.58% in October, which had a monthly rate of 2.88%.

Since June of the previous year, the central bank has raised rates by 4,150 basis points as part of a shift towards economic orthodoxy, maintaining its policy rate at 50% since March.

The bank is closely monitoring monthly inflation while deliberating on potential interest rate cuts, with growing expectations that easing could occur as early as December.

Haluk Burumcekci, founding partner at Burumcekci Consulting, indicated that postponing rate cuts until next year, after essential decisions regarding minimum wage and administered prices, would be more prudent, especially with an expected increase in minimum wage by January 1.

However, Burumcekci also noted that the central bank’s latest policy statement implies that rate cuts are a viable option for December.

Following the policy meeting last month, the central bank indicated it would adjust its rate to maintain the necessary tightness along the projected disinflation pathway, setting the groundwork for a cautious easing cycle.

The bank had anticipated that food prices would elevate overall inflation levels in November. Turkish Vice President Cevdet Yilmaz acknowledged high food inflation but mentioned a generally more favorable trend elsewhere.

Following the inflation report, the Turkish lira remained stable against the dollar at 34.7505, having earlier reached a record low.

Economists had identified medicine prices as a contributing factor to inflation in November, particularly after the government raised the euro rate for imported medicines by 23.5% late last month.

In November, the domestic producer price index increased by 0.66% month-on-month, reflecting an annual rise of 29.47% according to the latest data.

The Reuters poll suggested that annual inflation might drop to 44.8% by year-end, near the central bank's target of 44%. It also projected inflation to ease to 26.5% by the end of 2025, compared to the central bank's estimate of 21%.