Türkiye | Cooling Print, But a Firm Inflation Trend

Summary

Headline inflation realized as 0.87% m/m, lower than both market and our expectations(1.25%), led the annual rate down to 31.1%, yet the underlying trend remains strong. We now expect 31.5% inflation for the year end and CBRT to remain cautious with a similar 100 bps cut next week.

Key points

• Key points:
• Headline and seasonally adjusted monthly inflation were low, mainly due to food inflation, while seasonally adjusted core inflation deteriorated slightly, driven by basic goods.
• Despite the recent mild depreciation in the exchange rate, the worsening core inflation trend may reflect strong front-loaded demand. Seasonally adjusted basic goods inflation shows broad-based deterioration, led by clothing and other core goods. Similarly, seasonally adjusted services inflation remained close to 2.9%, maintaining a flat trend for the past three months.
• The average of the six inflation-trend indicators monitored by the CBRT declined only marginally, while the 3-month average has stayed at 2.1% for the past three months. The annualized trend of the 3-month median inflation stands at 26.6%.
• Cost-push pressures remain weak, as producer prices rose 0.84% m/m and 27.2% y/y. However, firms' expectations of a sharp increase in 12-month-ahead producer prices, along with uncertainties related to wage and administered-price adjustments at the beginning of the year, call for keeping prudence in economic policies.
• We expect 2025 year-end inflation to be around 31.5% on the recent lower realizations. Given upward risks to the disinflation path, we expect the CBRT to remain cautious and deliver a 100 bps rate cut at next week’s meeting. Fiscal policy may provide support next year, mainly through tax and administered price adjustments. Considering robust inertia, high inflation expectations, and a very gradual easing cycle assumption, we maintain our 2026 year-end inflation forecast at 25%.

Geographies

Topics

Tags