Türkiye | Low inflation realization on zero gas prices

Summary

Consumer prices rose by 0.04% in May on zero natural gas prices, led annual figure to fall 39.6% on favorable base effect. Even assuming a gradual depreciation in the currency, we expect 2023 year-end inflation to get closer to 50%.

Key points

• Key points:
• Core prices (C index) increased by 4.3% m/m in May (vs. 3.2% in April) on the back of basic goods and services prices while energy prices contracted by 21% m/m on zero natural gas prices.
• Food prices remained limited with 0.7% m/m thanks to the contraction in fresh fruit and vegetable prices and weak processed food prices.
• Inertia remained strong, implied by high services prices while cost push factors are still alive signaled by robust annualized trend in manufacturing producer prices.
• Trend inflation in subcomponents remaining steady at high levels exhibited that services and food prices would need more effort to curb down inflation in the near future.
• Potential strong wage adjustments in July on election promises, still robust domestic demand, high inertia, cost push factors, challenging food inflation on supply disruptions and second round effects would keep inflationary pressures alive in the near future.

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