Turkish inflation cools heading into winter

• More interest rate cuts likely
• Food price increases slow
• Housing and education up

A better than expected inflation report has cleared the way for Turkey’s central bank to continue its easing of interest rates, even though the lender’s year-end inflationary targets are likely to be missed.

Turkey’s consumer inflation edged up by 0.87 percent in November, according to data issued by state statistics agency Turkstat on December 3. 

This was below expectations, with analysts and the markets having priced in a monthly rise of more than 1 percent. The November result was the lowest monthly increase since May 2022.

Year-on-year inflation decreased to 31.07 percent, down from 32.87 percent the previous month and half the rate of November 2023. 

The increase in food and non-alcoholic drink costs decelerated sharply in November, up just 0.7 for the month, while prices for health, clothing and communications all rose below the monthly rate. 

The cost of education bucked the downward trend, rising by an annualised 66 percent as of November. 

Another area where inflation remained sticky was housing, with costs up by 50 percent year on year, making it the largest single contributor to the inflationary index. 

The November result was well below expectations, due in part to the slowing of the rate of increase in food prices, economist Iris Cibre told AGBI. 

“Fresh fruit and vegetable price increases are down by 6 percent, though this is not an abnormal development due to very rapid increases we had earlier,” she said.

Though inflation is cooling, there is little chance of the consumer price index falling to the 24 percent the central bank had set as its year-end target, with a figure of around 30 percent, flagged by treasury and finance minister Mehmet Şimşek on November 28, being closer to the mark. 

While the year-end inflation target will be missed, the November result could see the central bank make a deeper cut to interest rates than had been expected, Cibre said.

“This has eased the hand of the central bank and in my opinion an interest rate reduction of 200 points has entered into the picture.”

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The central bank’s key policy rate is 39.5 percent, following a 100 basis points reduction on October 23. The bank’s monetary policy committee is due to meet to discuss a possible rate cut on December 11.

Traders on Istanbul’s stock exchange were also buoyed by the inflation data, with the blue chip BIST 100 index climbing to 10-week highs soon after the Turkstat report was released. 

The reaction was welcome news for the government following a year of turbulent political tensions following the arrest of Ekrem İmamoğlu, the mayor of Istanbul, and more than 100 other municipal officials and politicians in connection with a criminal investigation.