Turkiye’s Inflation Decelerated More Than Expectations in February, Now Below 40% YoY
Bottom line: Turkish Statistical Institute (TUIK) announced on March 3 that the inflation softened to 39.1% y/y in February from 42.1% y/y in January. We think lagged impacts of previous tightening, relative Turkish lira (TRY) stability, and less-than-expected hike in minimum wage in January continue to relieve the price pressure. Taking into account that February’s inflation print met market expectations, we think Central Bank of Turkiye (CBRT) will continue its cutting cycle during the next MPC scheduled on March 6 and likely cut the key rate by another 250 bps lowering the rate to 42.5%.
Figure 1: CPI, Core Inflation (YoY, % Change) and Policy Rate (%), January 2018 – February 2025
Source: Continuum Economics
The deceleration trend in inflation continued in Turkiye in February and stood at below forecasts as the inflation rate softened for nine consecutive months. CPI cooled off to 39.1% y/y February from 42.1% in January with education, and housing prices leading the rise in the index. MoM inflation rose by 2.27% in February, considerably below 5.03% MoM inflation the previous month. Annual core inflation fell to a 37-month low of 40.2%, and PPI stood at 2.1% MoM, demonstrating a drop to 25.2% on same month of the previous year basis.
Annual inflation in the key food and non-alcoholic drinks sector was lower than the headline rate, at 35.1%. Education prices recorded the highest annual increase with 94.9% while housing prices were up by 70.81%.
We think lagged impacts of previous monetary tightening, relative TRY stability, less-than-expected hike in minimum wage in January coupled with a recent Turkish regulation lowering patients’ co-payments at public hospitals helped relieving the price pressure.
Speaking about the inflation figures, Treasury and Finance Minister Mehmet Simsek said on March 3 that with fiscal and revenue policies supporting the disinflation process and improving expectations, the government anticipates the steady decline in inflation will continue.
Taking into account that February’s inflation print met market expectations, we think CBRT will continue its cutting cycle during the next MPC scheduled on March 6 and likely cut the key rate by another 250 bps lowering the rate to 42.5%, despite domestic inflationary risks and unpredictable outlook for the global economy should be closely watched by the CBRT in the following months.