Türkiye | 2023 year-end CPI parallel to CBRT target

Consumer prices rose by 2.93% m/m in Dec, lower than our expectation (3.3%) and consensus (3.0%) and annual CPI accelerated to 64.77% (vs. 61.98% prev.). We expect 2024 year-end consumer inflation to reach 45%, though recent improvement in inflation trend and potentially stable currency pose downward risk on our forecast.

Key points

• Key points:
• Core prices (C index) rose by 2.3% m/m in December (70.6% y/y). If adjusted from seasonal factors, we calculate the monthly core trend inflation at nearly 4%, confirming the recent boost from the goods component; where the main driver remains to be the sticky services prices.
• The managed depreciation of the currency helps goods trend inflation decelerate but services inflation trend remains relatively higher, both reinforcing inflation inertia and containing improvement in inflation expectations.
• Our calculations show a monthly CPI trend of around 3% in December, which will likely increase in the first months of 2024 given the start of the year wage and price hikes and add challenges to maintain a disinflation trend under the lagging clearer deceleration in consumption.
• Given the recent decline in inflation trend and enhanced likelihood of keeping a stable currency led by accelerating non-residents’ portfolio inflow and improving inflation expectations, 2024 year end inflation can get closer to 40%. However, for the time being we stick to our 2024 year-end expectation of 45% but acknowledge slight downside risk on our forecast.

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