Türkiye | Slight downward surprise with no room for complacency

Summary

Consumer prices rose by 2.55% m/m, lower than both consensus (Bloomberg, 2.7%) and our expectation (2.85%), leading to its annual inflation to retreat to 32.9%. We now expect 2025 year-end inflation to be 32.5%, raising upside risks on our 2026 year-end forecast of 23% as well.

Key points

• Key points:
• The seasonally adjusted ease in monthly inflation (to 2% from the previous 2.7%) was mainly driven by lower core goods and food prices, and its 3-month trend improved only marginally to 2.37% m/m.
• The drop in core inflation was supported by basic goods, while services inflation stayed flat. The average of six inflation-trend indicators fell slightly to 2% m/m, and the 3-month average of median inflation—monitored closely by the CBRT—remained steady, with an annualized rate of 26.5%, below the headline trend. This may keep the door open for gradual rate cuts, but unanchored inflation expectations still restrict the room for easing and increase the reliance on macro-prudential measures.
• Cost-push pressures stayed weak as domestic PPI was 1.6% m/m, lifting its annual inflation slightly to 27% y/y. The past 12-month average annual PPI, the reference for the revaluation rate, reached 25.5%. The final rate to be set will be important for inflation expectations going ahead.
• Demand conditions stay blurred for disinflation. Besides, unanchored expectations, strong inertia and distorted pricing behavior keep upside risks on inflation. We will closely monitor the potential revisions and messages of the CBRT in the last inflation report of the year on November 7.
• Given the slight ease in the inflation trend, we expect the CBRT to deliver again a limited 100 bps cut in December. After potentially finishing this year at around 32.5%, we now evaluate a clear upward bias on our inflation forecast of 23% by 2026 end, depending on the start of the year price and wage hikes.

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