In December, Turkey sees a significant slowdown in inflation to 64.3 percent, potentially benefiting Erdogan’s chances in upcoming elections.

Good news for Turkey as annual inflation eased in December from its two-decade peak, according to official data released on Tuesday. This positive development could boost President Recep Tayyip Erdogan’s prospects in the upcoming elections scheduled for June.

The state statistics agency reported that consumer prices saw a 64.3 percent increase in December compared to the previous year. This rise shows a slight improvement from the 84.4 percent year-on-year increase seen in November.

Analysts are pointing to the sharp slowdown as a result of the base effect, a phenomenon that causes year-on-year price increases to appear smaller when compared to the exceptionally high rates from a year ago.

The latest reading is still higher than in any other emerging market except for Argentina.

But it fulfils Erdogan’s campaign promise that inflation will start falling at the start of the year after reaching the highest levels since 1998 last year.

Economy Minister Nureddin Nebati blamed last year’s record inflation rates on “challenging conditions all over the world” and promised a brighter future.

“In the coming months, all our citizens will start to feel the cumulative effects of the policies we have been implementing against inflation even more,” he tweeted after the data were released.

Spending splurge

Turkey’s economy has been going through convulsions since Erdogan launched an unusual experiment in September 2021 that tried to fight inflation by bringing down borrowing costs.

The lira began to lose value almost immediately, as consumers rushed to buy up gold and dollars to protect their savings.

The price of imports such as oil and gas soared, creating an inflationary spiral that the nominally independent central bank fed further by continuing to lower interest rates.

The annual inflation rate peaked at 85.5 percent in October 2021.

But polls show that most Turks lost trust in the official data after Erdogan replaced the head of the state statistics agency following a particularly dire inflation report last year.

A separate study released by Turkey’s ENAG research institute showed the annual inflation slowing to 137.6 percent in December from 170.7 a month earlier.

The economic crisis forced Erdogan to alter his foreign policy, resuming economic alliances with petrodollar-rich rivals in the Arab world and ramping up trade with Russia, despite its war on Ukraine.

These deals have helped to prop up Turkey’s hard currency reserves, allowing it to stabilise the lira.

The government has further forced exporters to convert 40 percent of their dollar revenues into liras, further supporting the Turkish currency.

‘Very difficult outlook’

The lira’s stabilisation has helped temper the pace of price increases.

But analysts warn that a wave of populist social support measures that Erdogan announced heading into the election make the current economic policies unsustainable.

He has tripled the minimum wage in the past year, raised state salaries and hiked pensions for millions of Turks.

Analysts believe these policies will cost the state billions of dollars, draining the budget and fuelling inflation.

“Turkey faces a very difficult economic outlook after elections, because of the current disastrous policy mix,” Timothy Ash of BlueBay Asset Management tweeted.

Erdogan has vowed not to raise the benchmark interest rate, which at nine percent is just a fraction of the annual inflation rate.