Turkey’s consumer price index (CPI) inflation officially stood at 44.38% y/y in December versus 47.09% y/y in November and 64.77% at end-2023, the Turkish Statistical Institute (TUIK, or TurkStat) said on December 3 (chart).

TUIK’s inflation series peaked at 75.45% in May. Subsequently, it quickly fell back to the 40%s thanks to the base effect.

The data compilation efforts of Turkey's infamous statistical institute remain under scrutiny, with few Turks believing the official inflation data. Putting out a headline figure of below 40% would perhaps prove a little too detached from reality, even for TUIK.

At the official rate of 44% y/y, Turkey remains in sixth place in the world inflation league.

The Istanbul-based ENAG inflation research group of economists, meanwhile, calculated a Turkish inflation figure of 83% y/y for December. The ENAG figures recorded for May and November were 121% y/y and 87% y/y, respectively.

TUIK also gave an official figure of 29% y/y for producer price index (PPI) inflation in December.

Monthly "dips"

TUIK also posted monthly official inflation of 1.03% for December after releasing 2.24% for November.

On December 6, TUIK will release seasonally-adjusted inflation figures that were released at 2.93% for November and 2.53% for October.

In the coming months, TUIK is set to deliver further outcomes in the 1-2%s for the official monthly headline indicator.

The central bank also tracks inflation expectations via its monthly "Sectoral Inflation Expectations" and "Survey of Market Participants" releases.

42% in January

On November 8, the central bank hiked its end-2024 official inflation "target" to 44% y/y in its latest quarterly inflation report from the previously "targeted" 38% y/y.

​​The central bank also targets an end-2025 official inflation of 21% y/y with the upper boundary standing at 26% y/y.

During a press conference, central bank governor Fatih Karahan said that the regulator sees official annual inflation at 42% (the upper boundary of the previous end-2024 target) in January and at 38% (the previous target) in March.

The central bank also expected that unadjusted monthly inflation for November and December would be released at levels a little bit higher than the 1.5%-level, while the seasonally-adjusted figures would come out at levels around the 2.3%s or a little bit above 2%.

The seasonally-adjusted monthly inflation figures will edge up a little in 1Q25 (due to wage hikes and new year price/fee updates), according to the governor.

It is foreseen that they will, meanwhile, fall below the 1.5%-level starting from 3Q25 and end the year in and around the 1.3%s (closer to the 1%-level).

On February 7, the central bank will release its new inflation report and updated forecasts.

Another 250bp cut on January 23

On December 26, the monetary policy committee (MPC) of Turkey’s central bank launched its monetary easing cycle with a 250bp rate cut.

On January 23, the MPC will hold its next meeting and, as things stand, another 250bp cut seems almost certain.

The MPC will hold eight meetings in 2025. If it delivers a 250bp cut at each meeting, its policy rate will decline by 20pp to 27.5%.

As things stand, given that the upper boundary of the authority's forecast range for end-2025 official inflation stands at 26% y/y, the journey along the path in question could be considered as under way.

However, if the TUIK’s inflation releases overshoot the central bank’s forecast range, the MPC may remain on hold at one or two meetings.

On November 29, TUIK said that Turkey had entered a technical recession with the 3Q official GDP release.

"Santa" rally bland this year

Looking at the global markets, the new year rally is commencing without excitement this year. The USD has gained further strength against EUR, testing the 1.02s and approaching parity.

The easing atmosphere is supposed to be more strongly felt until the rally ends with a shake-up through February.

On December 18, the Federal Reserve (Fed) delivered another 25bp rate cut. It brought the upper limit of its federal funds target range to 4.75%. It stood at 5.50% on September 17.

Currently, the Fed governors expect the rate to decline to 4.00% in 2025.

As things stand, the market expects another 25bp cut at the next rate-setting meeting to be held on January 29.

On December 12, the European Central Bank (ECB) also delivered another 25bp rate cut. So far, it has brought its deposit facility rate to 3.00% in December from 4.00% in June.

On January 30, the ECB is expected to deliver another 25bp cut at its next rate-setting meeting.

Turkey’s CDS remain below the 300-level, while the yield on the Turkish government’s 10-year eurobonds has moved above the 7%-level.

The USD/TRY rate is drawing a line in the 35s as the nominal devaluation and real lira appreciation policy remain on track.