The latest Consumer Price Index (CPI) print for Turkey, released on December 3, 2025, shows headline inflation moderating to 31.07% year-over-year (YoY). This figure is below the consensus estimate of 31.60% and marks a decline from November’s 32.87% reading, according to the Sigmanomics database. The easing inflation rate suggests some relief from the rapid price increases seen earlier in the year but remains historically elevated compared to the 12-month average of approximately 30.50% over the past year.

Drivers this month

• Shelter costs contributed 0.22 percentage points (pp), a slight decline from last month’s 0.28 pp.
• Food and beverages inflation slowed, subtracting 0.15 pp from the headline rate.
• Energy prices remained volatile but stable compared to November.
• Currency depreciation pressures eased marginally, supporting lower import-driven inflation.

Policy pulse

The current inflation rate remains well above the Central Bank of the Republic of Turkey’s (CBRT) 5% target, maintaining pressure on monetary authorities. The CBRT’s recent rate hikes have yet to fully anchor inflation expectations, with core inflation sticky above 25%. The December CPI print reinforces the need for cautious monetary tightening amid fragile growth prospects.

Market lens

Immediate reaction: The Turkish lira (TRY) appreciated 0.40% against the USD in the first hour post-release, while 2-year government bond yields declined by 15 basis points, reflecting relief at the lower-than-expected inflation figure. Breakeven inflation rates for 5-year bonds also edged down slightly.

Turkey’s inflation trajectory remains influenced by a complex interplay of macroeconomic variables. The Sigmanomics database highlights that the 31.07% CPI figure, while lower than November’s 32.87%, is still nearly six times the CBRT’s target. The persistent inflation is driven by a combination of monetary, fiscal, and external factors.

Monetary Policy & Financial Conditions

The CBRT has maintained a tight monetary stance with the policy rate at 22%, up from 19% six months ago. Despite this, real interest rates remain negative when adjusted for inflation, limiting the central bank’s ability to cool demand effectively. Financial conditions remain tight, with elevated credit spreads and cautious bank lending.

Fiscal Policy & Government Budget

Fiscal tightening measures, including reduced subsidies and higher tax revenues, have helped contain budget deficits, which narrowed to 3.50% of GDP in Q3 2025 from 4.20% a year earlier. However, public debt servicing costs remain high due to inflation-linked bonds and TRY depreciation, constraining fiscal space.

External Shocks & Geopolitical Risks

Ongoing geopolitical tensions in the region and volatile commodity prices continue to pose risks. The TRY remains sensitive to global risk sentiment, especially amid tightening global financial conditions. Import prices have stabilized but remain elevated compared to early 2025 levels.

Drivers this month

• Shelter inflation eased to 0.50% MoM, contributing 0.22 pp to headline inflation.
• Food inflation slowed to 1.10% MoM, down from 1.50% in November.
• Energy prices were flat MoM, stabilizing after sharp rises earlier in 2025.

Market lens

Immediate reaction: The TRY strengthened modestly post-release, with the USD/TRY rate falling 0.40%. Turkish government bond yields declined, reflecting improved inflation expectations. The market’s muted but positive response underscores cautious optimism amid persistent risks.

Looking ahead, Turkey’s inflation outlook balances between continued moderation and persistent upside risks. The Sigmanomics database and recent trends suggest three scenarios:

Scenario Analysis

• Bullish (30% probability): Inflation falls below 25% by mid-2026, driven by sustained monetary tightening, fiscal discipline, and stable external conditions.
• Base (50% probability): Inflation gradually declines to 28% by year-end 2026, with moderate policy effectiveness and manageable external shocks.
• Bearish (20% probability): Inflation remains above 30%, fueled by renewed currency depreciation, geopolitical tensions, or fiscal slippage.

Policy pulse

The CBRT is expected to maintain a cautious tightening bias, balancing inflation control with growth concerns. Fiscal authorities face pressure to sustain deficit reduction without stifling recovery. External risks, including commodity price volatility and geopolitical uncertainty, will require vigilant monitoring.

Market lens

Financial markets will likely remain sensitive to inflation prints and policy signals. The TRY’s performance will be a key barometer of confidence, alongside bond yield movements and inflation-linked securities.

Turkey’s December 2025 CPI reading signals a tentative easing of inflationary pressures but underscores the persistence of elevated price levels. Monetary policy remains challenged by structural inflation drivers and external vulnerabilities. Fiscal consolidation efforts provide some support but must be sustained to anchor inflation expectations. Market reactions reflect cautious optimism, yet geopolitical and financial risks loom large. The path to inflation normalization will be gradual and dependent on coordinated policy action and external stability.

Key Markets Likely to React to CPI

Turkey’s CPI data is a critical indicator for multiple asset classes. The Turkish lira (TRY) currency pairs, government bonds, and select equities with high domestic exposure typically respond sharply to inflation prints. Additionally, commodities sensitive to Turkish demand and inflation expectations also react.

• USDTTRY: The USD/TRY pair is highly sensitive to inflation and monetary policy shifts in Turkey.
• AKBNK.IS: Akbank’s stock price often reflects domestic economic conditions and inflation outlook.
• THYAO.IS: Turkish Airlines is impacted by inflation-driven cost pressures and consumer demand.
• BTCUSD: Bitcoin’s price can react to inflation expectations and currency volatility in emerging markets.
• EURTRY: The Euro/Turkish lira pair is a key gauge of regional risk sentiment and inflation impact.

Insight: CPI vs. USDTTRY Exchange Rate Since 2020

Since 2020, Turkey’s CPI and the USD/TRY exchange rate have shown a strong positive correlation. Periods of rising inflation coincide with TRY depreciation against the USD. For example, the CPI spike in late 2024 aligned with a 15% depreciation in USD/TRY. The December 2025 CPI moderation has led to a 0.40% appreciation in TRY, suggesting inflation control is key to currency stability.

FAQs

What does the December 2025 CPI reading indicate for Turkey’s economy?

The 31.07% YoY CPI suggests inflation is easing but remains high, signaling ongoing cost pressures and policy challenges.

How does inflation affect monetary policy in Turkey?

High inflation forces the CBRT to maintain tight monetary policy, balancing inflation control with growth risks.

What are the main risks to Turkey’s inflation outlook?

Currency volatility, geopolitical tensions, and fiscal slippage are key downside risks that could sustain high inflation.

Takeaway: Turkey’s December CPI print shows inflation easing but still elevated, requiring sustained policy vigilance amid external and structural risks.

This has been drafted with AI assistance and then thoroughly reviewed, refined, and approved by our human editorial team to ensure accuracy, and originality.