Türkiye | Annual CPI ended 2022 below 65%

Summary

Consumer prices increased by 1.2% in December and annual consumer inflation fell sharply on base effects to 64.3% from the previous 84.4%, leading to a full year average of 72.3%. We expect annual CPI to come down to 50-55% in 1Q23 and decline further to 40-45% just before the elections and year-end inflation to be 42%.

Key points

• Key points:
• Weaker energy prices and almost stable currency help to absorb upward pressure from strong demand, weakening but continuing cost push factors, second round effects and inertia.
• Domestic producer prices fell for the first time since November 2019 (-0.2% m/m) and annual PPI fell sharply to 97.7% y/y. Although the gap between annual CPI and domestic PPI narrowed down to 33.5pp, still high PPI figures will maintain cost push factors.
• Expansionary policies and wage adjustments will further boost consumption ahead of the elections and therefore the deceleration in inflation might be much lower.
• We expect the maintenance of the current policy framework at least until the elections, where negative real interest rates will continue to keep upside risks on inflation.
• Inflation outlook in the second half of the year will depend on the adjustment in economic policies and therefore the exchange rate.

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