Türkiye | Core inflation eases, food bites

Summary

Consumer prices rose by 2.04% m/m in August, above our expectation and consensus (1.75%), resulting in an annual inflation of 32.95%. We maintain our inflation forecast of 30% by end 2025 and assess that the CBRT might reduce the pace of cuts going ahead in order to contain the risk of sticking to 1.5-2% monthly CPI trend.

Key points

• Key points:
• The upward surprise in the headline came from mainly food inflation (0.75pp contribution), which had weighed to the downside in the previous three months.
• According to our calculations, seasonally adjusted (s.a.) monthly consumer inflation slightly eased to 2.4% m/m (down from 2.6% in July). Therefore, its 3-month trend inched up to 2.3% but still remained below its April level and closer to its pre-shock past December figure.
• In the details of core inflation, monthly basic goods inflation came down to 0.8%, supported by both durable goods and other basic goods; while services inflation eased only marginally to 2.7% with its stickiness closer to 3% since February.
• The Turkish economy grew by 1.6% q/q in 2Q25 (vs. 0.7% in 1Q25), bringing the output gap getting closer to neutral levels. The CBRT’s more negative output gap projections will likely be revised and huge positive contribution from inventories in 2Q25 requires caution not to allow fast price increases in the next months. Also, the stronger commitment of the CBRT for more aggressive inflation targets will necessitate timely reactions to well anchor inflation expectations.
• Given the reduced room for real appreciation going ahead, there is the risk of sticking to 1.5-2% monthly CPI trend in the short term, which will require a reduced pace of rate cuts, even starting from next week. We maintain our inflation forecast of 30% by end 2025 and evaluate risks on the upside for the next-year’s end of the year inflation consensus expectation of 20%.

Geographies

Topics

Tags