Sharp drop in Turkey’s inflation due to base effect: 64.27%

Turkish annual inflation slowed for a second month down to 64.27% in December from 84.4% the previous month, dropping due to a beneficial base impact after hitting a 24-year high in October, according to data released by Turkey’s Statistical Institute (TUIK) on Tuesday.

The base effect occurs when year-on-year price increases look smaller, compared to extremely high levels 12 months earlier, but the latest reading is still higher than in any other emerging market except for Argentina.

On a monthly basis, inflation rose 1.18% in December. Core prices, which exclude volatile items such as food and energy, rose 51.93% throughout 2022, TUIK said.

Annual rate of changes in CPI (%), December 2022:

Meanwhile ENAG, a group of independent economists dedicated to inflation research in Turkey calculated the yearly inflation as 137,55%.

The drop in inflation has a tremendous importance on President Erdogan's campaign ahead of elections in June but analysts say the slowdown may be at risk from a public spending splurge planned before the elections.

Many economists expect inflation to end the year at 44%, more than three times the average of 15 peers tracked by Bloomberg across Europe, the Middle East and Africa.

President Recep Tayyip Erdogan last month promised early retirement for millions of workers in a pre-election pledge that’s likely to cost the Turkish Treasury around $13 billion a year.

The government also announced a 55% raise for the official minimum wage and is preparing to inject $3.3 billion into state banks to accelerate cheap lending to help businesses cope with rising costs.