Istanbul (Reuters) – Turkish annual inflation dipped to 57.68% in January, official data showed on Friday, but was well above forecasts despite a favourable base effect that is expected to carry on until President Tayyip Erdogan seeks re-election in May.
Month-on-month, consumer prices rose 6.65%, the Turkish Statistical Institute said, nearly twice a Reuters poll forecast of 3.8%. Annually, consumer price inflation (TRCPIY=ECI) was forecast to be 53.5%.
The sharp monthly rise was due to a raft of new-year price hikes including for public transit, tobacco products and services, as well as rising food prices.
Turkey’s largest grocery chains, under pressure from the government, froze or cut prices for hundreds of products in January, but sector officials said they can only do so for a short period given the costs. It was unclear how much price reductions may have affected the inflation print.
Inflation hit a 24-year high of 85.51% in October, stoked by a series of unorthodox interest rate cuts, sought by Erdogan, that began in September 2021 and caused a currency crash late that year.
The annual price measure is now easing relative to that run-up, which included an 11% surge from December 2021 to January 2022.
The Reuters poll also showed that inflation was expected to end this year at 41%, nearly twice the 22% rate that the central bank forecasts, extending cost-of-living strains that are a top concern for voters ahead of the presidential and parliamentary vote.
Economists expect annual inflation to dip to around 40% by the time of the May elections, which are expected to be tight according to polls.
The domestic producer price index was up 4.15% month-on-month in January for an annual rise of 86.46% (TRPPIY=ECI), the data also showed.
Despite soaring prices, the central bank has slashed its policy rate to 9% from 19% since 2021, in order to flip chronic current account deficits by boosting investment with cheaper loans. The easing has left real rates deeply negative.
“External inflation pressure may be reducing, but Turkey’s deeply negative real interest rate completely offsets that advantage and produces a worrisome outlook,” Tatha Ghose, analyst at Commerzbank, wrote in a note.