Türkiye | Inflation trend improves on food prices

Consumer prices rose by %1.03 m/m in December, lower than consensus and our expectations (both at 1.6%), leading year-end annual inflation to reach 44.4%. We maintain our year-end 2025 inflation forecasts of 26.5% on a more balanced risk outlook.

Key points

• Key points:
• We calculate that the underlying trend inflation (3-month average of seasonally adjusted monthly inflation) improved to 2.35% in December (vs. 2.64% prev.) on the back of considerable improvement in food prices driven by fresh fruit and vegetable category, while the monthly improvement in core prices was relatively more limited.
• Slight acceleration in clothing and durable goods limited the improvement in basic goods inflation, whereas services prices slowed down especially on the back of the retreat in rent inflation.
• Cost push factors remained weak based our trend calculation but are relatively higher than what headline PPI implies (0.40% m/m and 28.5% y/y). Furthermore, 30% minimum wage hike points that the upside pressure on costs in the short run may remain lower than our previous expectations.
• Our expectation of some improvement in annual inflation in the first quarter could create room for CBRT to continue to easing cycle, we believe that a cautious stance should persist, ensuring sufficient positive real interest rates to maintain the attractiveness of TL assets.
• Despite the recent downside risk stemming from lower than expected minimum wage adjustment and the likelihood of some administered price adjusment to be subdued, unanchored high inflation expectations, strong inertia, the high possibility of real interest rates being lower than our expectations, and uncertainty regarding the magnitude of fiscal policy support could be upside risks, motivating us to maintain our year-end 2025 inflation forecast at 26.5%.

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