Turkey’s consumer price index (CPI) inflation officially stood at 39% y/y in February versus 42% in January and 44% y/y at end-2024, the Turkish Statistical Institute (TUIK, or TurkStat) said on March 3 (chart).

TUIK’s inflation series peaked at 75.45% in May 2024. Subsequently, it quickly fell back to the 40%s thanks to the base effect.

On February 3, when TUIK released the January data, bne IntelliNews noted: “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.”

It is not advisable to plan, price or draw inferences based on TUIK data. There is widespread concern about the reliability of Turkey’s official data series.

Remains 5th in world league

At 39%, Turkey remains in fifth place in the world inflation league.

The Istanbul-based ENAG inflation research group of economists, meanwhile, calculated a Turkish inflation figure of 80% for February, following its 81% assessment for January.

The ENAG figures recorded for May 2024 and end-2024 were 121% y/y and 83% y/y, respectively.

TUIK also gave an official figure of 25% y/y for producer price index (PPI) inflation in February.

Monthly inflation dips again

TUIK also posted monthly official inflation of 2.3% for February. 

The rate dipped to 1% in December. Then it was released at 5% for January in line with expectations over new year price and tax updates.

On March 4, TUIK will release seasonally-adjusted monthly inflation figures that were published at 3.38% for January and revised up to 2.03% for December from the previously released 1.87%.

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.

38% in March

On February 7, Turkey’s central bank surprised observers by hiking its end-2025 official inflation "target" to 24% y/y in its latest quarterly inflation report from 21% y/y in the previous report released in November.

Also, the upper boundary of the end-of-year forecast range was moved up to 29% y/y from 26% y/y.

By unexpectedly updating their end-year "target", the officials aimed to give the message that monetary policy is not moving on "autopilot" and that they are at the wheel.

During the previous press conference held in November, the governor said that the regulator saw official annual inflation at 38% y/y in March.

The seasonally-adjusted monthly inflation figures would edge up a little in 1Q25 (due to wage hikes and new year price/fee updates) compared to the 2%s in 4Q24.

They would, 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 May 22, the central bank will release its next inflation report and updated forecasts.

Another 250bp cut almost certain 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 (unless the board again opts to give the message that the wheel is not on autopilot).

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%.

Given that the upper boundary of the authority's forecast range for end-2025 official inflation has been moved up to 29% y/y, it is now almost certain that the MPC will remain on hold at one or two meetings.

Output gap negative, growth strong

On February 28, TUIK released a "strong" 1.7% q/q growth figure for 4Q24. As a result, Turkey exited its technical recession.

The output gap turned negative (official GDP growth releases fell below potential growth, which could be simplified as long-term average growth) in 3Q24 and will remain there, central bank governor Mehmet Karahan said on February 7, when the authority released its latest quarterly inflation report.

On May 30, TUIK will release its 1Q25 data.

Stress easing

The USD/TRY rate is testing the 36.50-level, with the nominal devaluation and real lira appreciation policy remaining on track.

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

Looking at the global markets, the recent stress in speculative assets is easing. The EUR/USD pair is hovering in the 1.04s.

As things stand, the market expects that the Federal Reserve (Fed) will again remain on hold at its next rate-setting meeting to be held on March 19.

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