Is Turkey really in a disinflation process?

Is Turkey in a Disinflation Process?

President Recep Tayyip Erdoğan announced that Turkey has entered a disinflation process while evaluating the 2024 foreign trade data. Drawing attention to the decrease in the foreign trade deficit, Erdoğan stated that the foreign trade deficit fell by 24 billion dollars to 82.2 billion dollars in 2024. In the same period, exports increased by 2.2% to 23.5 billion dollars, and reached 262 billion dollars on an annual basis, an increase of 2.5%.

In his speech, Erdoğan stated that the Turkish economy continues to grow and that the unemployment rate has fallen to its lowest level in the last 23 years. He also said that the Turkish economy, which grew by 2.1% in the 3rd quarter, continues its uninterrupted growth, that the income per capita has exceeded 15 thousand dollars, and that it is targeted to reach 17 thousand dollars in 2025. Erdoğan emphasized that the first phase of the fight against inflation has been completed and that the second phase, the disinflation process, has begun.

What is Disinflation?

Disinflation means that the inflation rate is falling, but the general price level is still continuing to rise. For example, if the inflation rate in a country was 50% the previous year and falls to 30% this year, this process is called disinflation. However, prices are still continuing to rise; they are just increasing at a slower pace compared to the previous period.

At this point, disinflation should not be confused with deflation, which refers to falling prices:

     •       Disinflation: A decrease in the inflation rate (prices are still continuing to rise).

     •       Deflation: A general decline in prices.

In economic policies, disinflation is generally achieved through tight monetary policies. Interest rate hikes, tightening of the money supply, and controlling demand are among the primary methods used to manage the disinflation process.

Is Turkey Really in a Disinflation Process?

Do economic data indicate that the disinflation process has begun? According to TUIK's January 2025 data:

             •       Consumer Price Index (CPI) with 2003=100 base year:

             •              Increased by 5.03% compared to the previous month.

             •              Increased by 42.12% compared to the same month of the previous year.

             •             Showed an increase of 56.35% according to twelve-month averages. According to these data, although annual inflation shows a decline, price increases continue. In other words, there is a slowdown in the rate of price increases compared to the periods when inflation peaked, but prices are still rising. While this shows that the disinflation process has begun, it is possible to say that a direct positive reflection on the public's purchasing power has not yet been seen.

In the coming period, the effects of inflation and interest rate policies on the market will be closely monitored. Turkey's economic indicators will play a critical role in determining whether the disinflation process is sustainable.