Published on Monday, September 4, 2023 | Updated on Thursday, September 7, 2023

Türkiye | Strengthening upward pressure on inflation

Consumer prices rose by 9.09% m/m in August, higher than both our expectation (7.0%) and market consensus (7.2%), resulting in an annual inflation of 58.9% up from 47.8% in July. Considering higher-than-expected August realization, consumer inflation will likely get closer to 70% at the end of this year.

Key points

  • Key points:
  • Core prices (C index) surprised to the upside, rising by 8.9% m/m in August, caused annual core inflation to reach 65% on the back of stronger pass thru and the higher than expected second round price effects especially in services side.
  • Among the main drivers on the upsurge of inflation was food prices rising by 8.4% m/m in August, which led annual food inflation to climb up significantly to 73.6% from 61% the month before stemming from rising cost-push factors, delayed price adjustments and supply distortions.
  • Deterioration in inflation trend evident in steeper seasonally adjusted trimmed inflation, worsening inflation expectations, strengthening cost push factors and still robust domestic demand would keep upside risks on the inflation outlook in the near term.
  • Despite the CBRT’s latest positive surprise with 750bps rate hike, growth performance above the potential driven by still strong private consumption show that it would be hard to achieve the intended results in the short term with a policy rate far below inflation.
  • The gradual normalization in economic policies in line with the soft landing target of the Government increases the likelihood of annual inflation staying above 40% by end 2024.

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