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Turkey’s inflation likely to decline to 43.2% by 2023-end

Person, Market, Farmer's Market REUTERS/Stoyan Nenov
Prices continue to rise sharply month-to-month with the median estimate at 2.7 percent

Turkey’s annual inflation is expected to fall sharply to 66.8 percent in December due to a favourable base effect but drop only to 43.2 percent by the end of 2023, a Reuters poll showed, while monthly price rises should remain elevated.

The end-2023 forecast is nearly twice that of the government, and raises the prospect of continued cost-of-living strains as Turks vote in tight presidential and parliamentary elections next year.

Inflation peaked around 85.5 percent, a 24-year high, in October after rising for 17 months, mainly due to President Tayyip Erdogan’s unorthodox low interest-rate monetary policy and the resulting currency crisis last year.

Inflation dropped slightly in November and the decline is expected to become more pronounced in December, and in the first quarter of the year, when the surge in prices in the same period last year spells relief for this year’s annual inflation calculation.

In the Reuters poll of 12 economists, the median estimate for annual December inflation was 66.8 percent.

Forecasts ranged between 64.60 percent and 69.1 percent, largely in line with the government’s forecast of 65 percent.

Prices continue to rise sharply month-to-month with the median estimate at 2.7 percent, in a wide range of 1.4 percent and 4.1 percent.

The direction of automotive and food prices could create uncertainty around the inflation print for December due to amendments made to vehicle special-consumption tax brackets in late-November, said Deniz Cicek, economist at QNB Finansbank.

“Fuel prices fell in parallel with oil prices this month (while) electricity and natural gas prices were stable… We expect the energy group will pull down headline inflation in December,” Cicek said, adding rising demand elevated furniture, electronic devices and food prices.

Policy Rate

Despite soaring prices, the central bank has slashed its policy rate by 500 basis points since August to nine percent, citing an economic slowdown. The easing was part of Erdogan’s economic programme prioritising exports, production, investments and employment.

The lira shed 44 percent of its value against the dollar in 2021, most of it during the December currency crisis sparked by last year’s rate cuts.

It shed another 30 percent this year to historic lows, but held mostly stable in the last couple of months.

Ankara says the programme will help turn Turkey’s chronic current account deficits to a surplus, which it says will lead to a lasting fall in inflation.

However, economists see inflation dropping only to 43.2 percent by end-2023, according to the median estimate of eight economists in the Reuters poll, with forecasts ranging between 33 percent and 48 percent.

Ankara forecasts 24.9 percent inflation by the end of 2023, according to medium-term economic projections, and it does not see a current account surplus in at least the next three years.

The Turkish Statistical Institute is scheduled to announce December inflation data on January 3.