ISTANBUL (Reuters)

Turkish inflation for December was lower than expected at 44.38% annually and 1.03% on a monthly basis, according to data released on Friday. This comes as the central bank initiated an easing cycle aimed at addressing previous rampant price rises.

The month-on-month inflation was significantly lower than November’s 2.24%, as reported by the Turkish Statistical Institute. The annual consumer price inflation (CPI) figure fell from over 47% in November.

Key factors driving annual inflation included increases in education, housing, and restaurant prices, while furniture and telecoms prices contributed to the monthly rise.

A Reuters poll had anticipated an annual inflation rate of 45.2% and a monthly rate of 1.61%. The latest figures met the central bank’s year-end target of 44%, marking the lowest annual inflation since mid-2023.

The central bank cut the policy rate by 250 basis points to 47.5% last week as part of its new easing strategy, having previously raised it as high as 50% from 8.5% amid inflation and currency pressures.

Moving forward, the central bank indicated a cautious approach to policy adjustments based on inflation forecasts, expecting to implement further rate cuts as inflation slows. Analysts from JPMorgan anticipate three additional cuts of 250 bps and five more of 200 bps in 2024, potentially reducing Turkish interest rates to 30% by the end of 2025.

Finance Minister Mehmet Simsek stated that inflation is projected to decline, benefiting from fiscal policy support, less rigid services inflation, and improved expectations.

Economists predict inflation to drop to an annual rate of 26.5% by year-end, while the central bank forecasts a decline to 21%. Upcoming prices will be influenced by new-year hikes and a 30% minimum wage increase that fell short of worker demands.

In 2025, taxes and fees will generally reflect the inflation coefficient, although the government increased a fuel tax by 6% as part of its disinflation strategy.

Lastly, the domestic producer price index increased by 0.4% month-on-month in December, with an annual rise of 28.52%. The Turkish lira remained stable at 35.3850 to the dollar, close to its record low.