Turkey's inflation drops to 64.27% in December due to base effect

© Reuters. FILE PHOTO: People shop at an open market in Istanbul, Turkey, December 5, 2022. REUTERS/Dilara Senkaya

ISTANBUL (Reuters) - Turkish annual inflation slid to 64.27% in December, official data showed on Tuesday, below forecast, dropping because of a favourable base effect after hitting a 24-year high in October.

President Tayyip Erdogan's unorthodox low interest-rate monetary policy and a resulting currency crisis pushed inflation to a peak of 85.5% in October before dipping slightly in November.

Consumer prices rose 1.18% month-on-month in December, the Turkish Statistical Institute said, below a Reuters poll forecast of 2.7%. The forecast for annual consumer price inflation was 66.8%.

The biggest monthly consumer price increases were seen in the health sector, up 5.91%, while key food and non-alcoholic drink prices were up 1.86%. Transport prices dropped 4.14%.

The base effect that drove the decline in annual inflation from November was a 13.6% month-on-month surge in consumer price inflation in December 2021.

Despite soaring prices, the central bank has slashed its policy rate by 500 basis points since August to 9%, citing an economic slowdown. The easing was part of Erdogan's economic programme prioritising exports, production, investment and employment.

The lira was unchanged at 18.7255 against the dollar after the data was released.

The lira shed 44% of its value against the dollar in 2021, most of it during a December currency crisis sparked by rate cuts. It shed another 30% in 2022 to historic lows but held mostly stable in the last quarter.

The Reuters poll showed inflation was expected to remain elevated this year, ending 2023 at 43.2%, nearly twice the level forecast by the government and raising the prospect of continued cost-of-living strains as Turks vote in presidential and parliamentary elections by June that are expected to be tight.

The domestic producer price index was down 0.24% month-on-month in December for an annual rise of 97.72%.