ISTANBUL – Turkey’s inflation rate showed a sharper-than-expected decline in December 2024, reaching an annual rate of 44.38% and a monthly rate of 1.03%, according to data from the Turkish Statistical Institute. This marks a significant improvement from November’s 47% annual rate and 2.24% monthly increase.
The figures fell below economists’ expectations, which had projected 45.2% annual inflation and 1.61% monthly inflation. The decline aligns with the Turkish central bank’s year-end midpoint target of 44%, making December’s rate the lowest since mid-2023.
Key Drivers Behind the Inflation Decline
- Sectoral Contributions: Education, housing, and restaurant prices led the annual inflation figures, while monthly increases were driven by higher costs in furniture and telecom services.
- Disinflationary Policies: The central bank’s monetary easing cycle, initiated last week, contributed to the slowing inflation rate.
- Controlled Price Adjustments: New policies, including lower-than-usual tax hikes on fuel and other key goods, helped mitigate price pressures.
Monetary Policy Adjustments
The central bank reduced its policy interest rate by 250 basis points to 47.5%, following a year of extreme rate hikes to combat runaway inflation. Between mid-2023 and late 2024, rates soared from 8.5% to 50%.
Economists now expect the central bank to continue cutting rates throughout 2025, targeting 30% by year-end. Analysts at JPMorgan anticipate three additional cuts of 250 basis points each, followed by five cuts of 200 basis points.
The bank has also reduced the number of rate-setting meetings from 12 to 8 per year, signaling a more deliberate approach to monetary policy adjustments.
Inflation Outlook for 2025
- Government Projections: Finance Minister Mehmet Simsek expressed optimism, forecasting further disinflation with the support of fiscal policies, improving inflation expectations, and reduced rigidity in service pricing.
- Central Bank Targets: Inflation is expected to drop to 21% by the end of 2025, according to the central bank.
- Economists’ Consensus: A Reuters poll anticipates a year-end inflation rate of 26.5%, factoring in recent policy adjustments and external pressures.
Challenges Ahead
- Wage Increases: A 30% rise in minimum wage, while lower than worker demands, could increase production costs and consumer prices in the short term.
- Fuel Taxes: The government limited its fuel tax hike to 6%, balancing revenue needs with the disinflation strategy.
- Administered Price Hikes: Adjustments to fees and services indexed to inflation will also influence price levels in early 2025.
Producer Price Index and Currency Performance
The domestic producer price index (PPI) rose 0.4% month-on-month in December, with an annual increase of 28.52%. The Turkish lira remained relatively stable, trading at 35.3850 per dollar, hovering near record lows.
Key Financial Metrics
| Metric | December 2024 | Year-on-Year Change |
|---|---|---|
| Annual Consumer Inflation | 44.38% | Lowest since mid-2023 |
| Monthly Consumer Inflation | 1.03% | Below expectations |
| Annual Producer Inflation (PPI) | 28.52% | |
| Turkish Lira (USD/TRY) | 35.3850 | Near record low |
| Policy Rate | 47.5% | Down 250 bps |
Economic Outlook for 2025
Turkey’s disinflation program faces challenges from wage pressures and global economic uncertainty. However, the central bank’s gradual easing and fiscal support mechanisms are expected to sustain a downward inflation trajectory, boosting confidence in the economy’s stability.
Keywords: Turkey, Inflation, Central Bank, Policy Rate, Disinflation, Economic Indicators, Fiscal Policy, Turkish Lira, Producer Price Index, FinanceFlashNews
