Inflation Trends in Türkiye
Inflation in Türkiye has been on a decline for the fourth consecutive month, with December’s numbers coming in below expectations. This decline has paved the way for continued interest rate cuts. The annual inflation rate slowed down to 30.89% in December from 31.07% in November, according to the Turkish Statistical Institute (TurkStat). This is the lowest rate since November 2021, when prices had risen by 19.82%.
Monthly and Annual Inflation Rates
On a monthly basis, consumer prices rose by 0.89% in December, following a 0.87% increase in November. These numbers are lower than the forecasted monthly inflation rate of 0.98%. The annual inflation rate also came in below expectations, with a forecast of about 31%. The Central Bank of the Republic of Türkiye’s (CBRT) end-2025 interim inflation target is 24%, with a forecast range of 31%-33%.
Factors Contributing to Inflation
The decline in inflation can be attributed to a favorable course in food prices. Food and non-alcoholic drinks prices rose by 28.31% annually, with price rises led by education at 66.27% and housing at 49.45%. Inflation based on transportation moderated to 28.44% from 29.23%. Annual inflation stood at 17.7% in core goods and dropped by 21.7 percentage points in services to 44%.
Government Response and Expectations
Vice President Cevdet Yılmaz stated that the decline in agricultural production due to frost and drought caused temporary increases in food prices in 2025, which affected the year-end inflation. Despite these temporary shocks, the decline in inflation has reached 44.6 points compared to May 2024. The government expects inflation to fall below 20% levels this year and aims for the stickiness in pricing behavior to be permanently broken, with inflation receding back to single-digit levels starting from 2027.
Monetary Policy and Future Outlook
The central bank has shaved 950 basis points off its one-week repo rate in 2025, bringing it down from 47.5% to 38%. The first of eight monetary policy meetings planned for 2026 is scheduled for January 22. While the bank has emphasized that future decisions will remain data-driven, it is widely expected to continue with its easing cycle. Inflation expectations, although still high, have been declining among market participants, businesses, and households.
Conclusion
In conclusion, the decline in inflation in Türkiye is a positive trend, and the government’s efforts to control prices and stabilize the economy are showing results. With supportive global financial conditions, moderate commodity prices, and tight monetary policy, the outlook for 2026 looks promising. The central bank’s commitment to data-driven decision-making and the government’s aim to break the stickiness in pricing behavior are crucial steps towards achieving single-digit inflation levels in the future. As the economy continues to recover, it is essential to monitor inflation trends and adjust policies accordingly to ensure sustainable growth and stability.
