Turkish inflation fell for the second month in a row in December as lower fuel and food costs drove a steep drop in consumer prices and central bank policies eased pressure on the country’s currency.
Annual consumer price inflation (CPI) was 64.3 per cent in December,
according to data from the state statistics office on Tuesday. It was the fastest drop in the annual rate since 1995 after inflation reached 84.4 per cent in November. In October, inflation had hit a 24-year high of 85.5 per cent.
Economists polled by Reuters had forecast price growth of 66.8 per cent in December. The lower annual rate benefited from an easing of Turkey’s currency crisis which had caused the cost of imports to soar from December 2021.
Measures to prevent price rises, which have included government price inspections at grocery stores, have “protected our citizens’ purchasing power”, finance minister Nureddin Nebati said on Twitter after the data was released. He promised more people would begin to feel the “collective effect” of such steps without shrinking the $800bn economy.
Rampant inflation has harmed the government’s popularity in opinion polls ahead of elections due by June. President Recep Tayyip Erdoğan has recently announced a round of public spending measures, including a large minimum wage increase and early retirement for millions of people, which could shore up support for the ruling Justice and Development (AKP) party.
The party is considering moving the election “slightly forward” to avoid the summer holiday season, the AKP said on Monday. Stimulus measures are expected to have their biggest impact on households in the first half of this year, said economists.
Lower global oil prices in December, driven by recession concerns in the world’s biggest economies, helped tame Turkish inflation as transportation costs including petrol and diesel prices fell 4.14 per cent from the previous month. Food prices rose 1.86 per cent from November, far slower than its previous monthly gains.
“The decline in global commodity prices, particularly in oil and food
prices, portrays a constructive picture” for the coming period, said
Haluk Burmcekci, economist at Bürümcekçi Research & Consulting.
Turkey’s central bank broke with its peers late last year and began slashing interest rates to boost spending and borrowing ahead of this year’s election. The lira subsequently lost 30 per cent of its value and the country suffered one of the world’s highest rates of inflation.
The currency has stabilised in recent months amid the central bank’s interventions in the foreign exchange market and other measures, such as offering exchange rate-linked lira savings accounts, to cushion its fall.
However, the reprieve for Turkish consumers may be relatively brief, even as inflation data benefits from the favourable currency-related base effect in the first part of this year. Economists have warned that prices will continue to rise due to the central bank’s unconventional monetary policies and public spending ahead of the election.
“Demand-creating effects, such as wage increases and early retirement, should be taken into account in the first months of the year,” said Enver Erkan, chief economist at Tera Securities, in a note to clients, noting that the December data precedes the latest stimulus measures.