Turkiye Inflation Preview: CPI is Expected to Continue Decelerating in January
Bottom line: After easing to 44.4% annually in December, we expect consumer price index (CPI) to cool further down to 41-42% y/y in January, which will be announced on February 3. We think lagged impacts of monetary tightening, relative Turkish lira (TRY) stability, and less-than expected hike in minimum wage will help relieving the price pressure. Despite core goods inflation remained relatively low, and domestic demand stood at disinflationary levels in December; we feel deteriorated pricing behaviour, the stickiness of services inflation, and adverse geopolitical impacts will likely lead to average headline inflation to stand at 31.9% in 2025.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2015 – January 2025
Source: Continuum Economics
The deceleration trend in inflation continues in Turkiye despite the pace is slower-than-expected. CPI cooled off to 44.4% y/y in December from 47.1% in November. MoM inflation rose by 1.03% in December as monthly inflation stood below expectations while forecasts in surveys ranged between 1.4% and 1.8%.
We now expect inflation to soften to 41-42% y/y in January which will be announced on February 3. We think lagged impacts of previous monetary tightening, relative TRY stability, and less-than expected hike in minimum wage will help relieving the price pressure. 30% administered rise in the minimum wage for 2025 was lower than workers had requested, which will likely support the inflation relief.
Despite core goods inflation remained relatively low, and domestic demand stood at disinflationary levels in December; we feel deteriorated pricing behaviour, the stickiness of services inflation, and adverse geopolitical impacts will lead to average headline inflation to stand at 31.9% in 2025. (Note: Central Bank of Republic of Turkiye (CBRT) predicts YoY inflation will fall to 21% by the end of 2025, though some Turkish businesses and households doubt it will come down that quickly. The government envisages the rate will drop even more in that period, to 17.5%).
It appears the inflation expectations of consumers and companies continued to improve in January, a survey by the Central Bank showed on January 28. The 12-month ahead inflation expectations of households declined from 63.1% percent in the December survey to 58.8 percent in the January survey. Remaining hopeful, Treasury and Finance Minister Mehmet Simsek said “Inflation expectations are critical to the pace of disinflation. We anticipate that expectations will further support the decline in inflation in the coming period.”
As CPI softens ignited by previous tightening and relative TRY stability underpinning the inflation relief, we foresee decelerating trend will continue to dominate the inflation outlook in 2025, but the extent of the decline will be determined by administrative price and tax adjustments. We still think the road to bringing inflation back down to single-digit levels will be very bumpy, and the inflation getting there before 2027 remains very unlikely.