Turkey’s consumer price index (CPI) inflation officially stood at 42% y/y in January versus 44% y/y at end-2024, the Turkish Statistical Institute (TUIK, or TurkStat) said on February 3 (chart).

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

The 30%s may arrive with the February release. Or March at the latest. It is near certain that the March figure will begin with a 3.

At the official rate of 42% y/y, Turkey moved up one spot in the world inflation league to fifth place.

The Istanbul-based ENAG inflation research group of economists, meanwhile, calculated a Turkish inflation figure of 81% y/y for January. The ENAG figures recorded for May and end-2024 were 121% y/y and 83% y/y, respectively.

TUIK also gave an official figure of 27% y/y for producer price index (PPI) inflation in January.

Monthly inflation jumps with new-year hikes

TUIK also posted monthly official inflation of 5% for January in line with expectations. In December, the rate "dipped" to 1% in December, the authority previously reported..

On February 4, TUIK will release seasonally-adjusted monthly inflation figures that were published at 1.87% for December and 2.86% for November. And 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.

New inflation report on February 7

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

The regulator is targeting end-2025 official inflation of 21% y/y with the upper boundary set at 26% y/y.

During a press conference, central bank governor Fatih Karahan said that the regulator saw 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 turn out to be 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.

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. Most probably, the authority will not change its end-2025 "target".

Another 250bp cut very likely on March 6

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, it delivered another 250bp rate cut in line with expectations.

On March 6, 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 of the remaining seven meetings, the policy rate will fall to 27.5% from the current 45%.

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 can 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. On February 28, TUIK will release the 4Q data.

Trump volatility continues

Looking at the global markets, the markets remain on a shaky ground with Donald Trump at the White House.

The EUR/USD tested the 1.01s on January 13 before bouncing back to the 1.05s on January 24. The pair dipped back to the 1.02s on February 3.

The market players are clearly confused about what should be anticipated from the White House when it comes to the "orange man’s" actions. So far, it appears a consensus has emerged that he is inflationary.

As a result, the US yield curve has moved up despite rate cuts.

On January 29, the Federal Reserve (Fed) kept the upper limit of its federal funds target range at 4.50%. The rate 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 that the Fed will again remain on hold at the next rate-setting meeting to be held on March 19.

On January 30, the European Central Bank (ECB) delivered another 25bp rate cut. Its gradual loosening brought its deposit facility rate to 2.75% from 4.00% in June.

On March 6, the ECB is to hold its next rate-setting meeting. Another 25bp cut is on table.

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

The USD/TRY rate is testing the 36-level, with the nominal devaluation and real lira appreciation policy remaining on track.