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Turkey’s inflation falls below 85% after a 17-month surge

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Turkey's cost-of-living crisis was set off last year when the central bank began stoking prices by cutting interest rates

Turkey’s official inflation rate eased to 84.4 percent in November, its first fall in 17 months, in a sign that the economic upheaval caused by President Tayyip Erdogan’s unorthodox policies could moderate in time for elections in six months.

The annual rate was just below forecast at 84.39 percent, down from a 24-year high of 85.51 percent in October. Turkey’s cost-of-living crisis was set off last year when the central bank began stoking prices by cutting interest rates at Erdogan’s behest.

Month-on-month, consumer price inflation rose 2.88 percent, the Turkish Statistical Institute said, compared with a Reuters poll forecast of three percent. The annual forecast was 84.65 percent.

Last month, the central bank wrapped up the easing cycle that had brought the policy rate to nine percent from 19 percent last year. It was carried out despite soaring prices and a global trend in the other direction toward tightening.

The government has emphasised low rates to boost production and exports with the aim of achieving a current account surplus, which it says will lead to a lasting fall in inflation.

Economists forecast inflation will cool toward the end of the year, largely due to favourable base effects from late 2021, when the rate cuts sparked a currency crisis that sent prices soaring.

Facing tight elections in May or June, Erdogan’s government has employed a policy of tightly controlling the foreign exchange rate with indirect foreign exchange sales to the market, and a heavy hand in directing credit in the economy.

“These measures do not appear to be sustainable, but it seems that the economy management will try to maintain this strategy until the elections,” said Burumcekci Research & Consultancy’s Haluk Burumcekci.

The Reuters poll sees inflation ending 2022 at 69 percent. Burumcekci sees it dipping to 43 percent a year later.

The lira traded flat at 18.6375 after the data and has been largely stable since the summer. It shed 44 percent against the dollar in 2021, most of it during the crisis, and fell another 29 percent this year, touching historic lows.

The biggest monthly rise in November prices was in the food and non-alcoholic drinks sector, which was up 5.75 percent, while alcoholic drinks prices climbed 3.19 percent.

The central bank cut its policy rate by 150 basis points in November, bringing the cumulative easing in four months to 500 basis points. The easing ran counter to orthodox economic policy in which rates are raised to cool prices.

The domestic producer price index was up 0.74 percent month-on-month in November for an annual rise of 136.02 percent.