(Bloomberg) -- Turkish President Recep Tayyip Erdogan’s pre-election promise to give a limited volume of free natural gas to households for a year will likely throw off inflation readings now that energy usage is surging in the cold months.

The discount, in effect since May, only applies for up to 25 cubic meters per month, an amount some 60% lower than average gas consumption by households in most regions of Turkey at this time of the year. With chillier weather setting in, many people probably far exceeded the cap and will end up paying for the extra fuel after a period when the statistics service was recording household gas prices as zero.

The likely result is that Turkey will see its first acceleration in monthly inflation since July. Data due Monday will show consumer prices grew 3.7% in November from October, according to the median forecast in a Bloomberg poll of economists. The exact impact of higher gas usage on inflation is unclear.

The generous pledge made before the presidential ballot was emblematic of Erdogan’s idiosyncratic policies at the time — an approach that’s been largely abandoned since his May re-election with the appointment of a new team of technocrats to oversee the $1 trillion economy. 

Although the gas giveaway briefly succeeded in pushing monthly price growth near zero, it’s now backfiring and could break the disinflation momentum that the central bank has hailed as a sign that cost pressures are starting to ease up.

The picture for inflation is far worse on a year-on-year basis. Price increases probably approached an annual 63% in November, a separate survey showed, which would be the fastest this year and an increase from near 61% in October. 

The central bank anticipates price growth will peak next May at as high as 75%, finishing 2024 at 36% from 65% at the end of this year.

What Bloomberg Economics Says..

“Our year-on-year 62.6% November inflation forecast implies a pick-up in the pace of monthly price gains, much to the central bank’s dismay. A key contributor will be natural gas usage by households, which will exceed the free gas allowance in a discount scheme announced before May’s elections.”

— Selva Bahar Baziki, economist. Click here to read more.

The shift in priorities over the past half a year has allowed the central bank to raise interest rates sharply and unwind other unconventional measures blamed for driving away foreign investors and causing a series of currency crises. 

But even as monthly hikes since June have nearly quintupled the key rate to 40%, it remains deeply negative when adjusted for current prices. Real rates are now above zero relative to projected inflation at the end of 2024, a gauge that’s preferred by policymakers when talking about monetary tightening. 

Municipal elections in March are raising the possibility that the focus will shift back to supporting the economy. Other risks abound for inflation, including an expected increase in the minimum wage next month.

“Inflation will remain a challenge,” Deutsche Bank AG analysts including Yigit Onay said in a report. “The upcoming minimum wage decision, expected to be sizable given the approaching local elections, adds an additional layer of uncertainty for next year.”

Central bank Governor Hafize Gaye Erkan, who was appointed in June, has acknowledged that temporary factors outside the reach of monetary policy — including gas consumption in November — may push up price gains. Still, in a speech last week in Istanbul, she said “a decline in the underlying trend of inflation has started.”

A lasting turnaround in inflation is critical for foreign investors who are considering pouring money into lira assets. The carry trade is already reviving because cumulative monthly declines in the Turkish currency have been less than monthly inflation since August, meaning the lira was appreciating in real terms.

Turkey’s headway in taming consumer prices is also high on the radar of credit assessors like S&P Global Ratings, which last week raised the outlook on the government’s debt ranking to positive. The upgrade means S&P is more inclined to lift Turkey’s rating — which is now deep in junk territory at B — for the first time in a decade.

But while S&P praised policymakers for “making progress toward cooling down the overheated economy,” it warned the outlook could return down to stable “in connection with currency devaluation and a reversal of policies designed to reduce inflation.”

--With assistance from Joel Rinneby.

©2023 Bloomberg L.P.