Inflation in Turkey, as measured by the TUFE(CPI) index, increased slightly to 62% annually in November, up from 61.4% last month. However, the good news is, that PPI kept decreasing, reaching 42%.
Monthly inflation was mostly led by housing, as the increases in natural gas usage are reflected in this category. Annual inflation was led by education, hospitality, and healthcare, as housing prices had the least annual increase due to legislation controlling rate hikes.
Even though the uptick in inflation might seem concerning at first, I think the decrease in PPI to 20 percentage points below inflation is good news, as PPI is a closely watched indicator of future inflation. This is because current production costs are often reflected in consumer prices in the next months. Also, the closing gap between the policy rate and the inflation rate strongly suggests inflation will decrease significantly in the next months.
Turkey has pivoted from a policy of keeping interest rates low, even in the face of high inflation, to a policy of inflation targeting, led by the new head of the Turkish Central Bank, Hafize Gaye Erkan, and the new finance minister, Mehmet Şimşek. This policy led to a significant increase in the Turkish Central Bank reserves. Monetary policymakers seem determined to keep moving forward with rate hikes until the inflation targets are reached.
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