Published on Monday, August 3, 2026

Türkiye | Underlying inflation still calls for caution

Summary

Consumer price inflation came in at 1.78% m/m, slightly below our expectation (1.85% m/m) and the consensus (1.9% m/m), bringing annual inflation down to 31.8%. We continue to maintain our 30% year-end inflation forecast, considering volatile energy prices and still-elevated, unanchored inflation expectations.

Key points

Key points:
Monthly consumer inflation rose to 1.78% m/m (vs. prev. 0.99%), driven by food, energy, and services prices. Although seasonally adjusted (s.a.) monthly inflation rose to 2.2% (vs. prev. 1.85%), the underlying trend remained broadly flat after excluding the effects of the healthcare price hike, higher energy prices, and the tax adjustment on alcoholic beverages.
Core C inflation (s.a.) stayed almost steady at 2.1% m/m, as the moderation in basic goods inflation offset the upward pressure from services inflation. While weaker domestic demand conditions support disinflation in basic goods, services inflation remains solid even after temporary factors are excluded.
Median inflation and the average of six underlying inflation indicators improved to 1.5% m/m and 1.8% m/m, respectively, supported by lower basic goods inflation. Their three-month averages also eased to 1.7% and 2.0%, respectively. However, the lack of broad-based improvement in diffusion indicators and the broadly flat underlying trend, despite disinflationary demand conditions, continue to call for caution.
The lagged impact of fuel price adjustments on August inflation, together with expected time-dependent price increases, could exert upward pressure on inflation in the Aug–Sep period. Seasonal factors in food inflation and weakening demand conditions could provide some support. Nevertheless, high inflation expectations, volatile energy prices and strong inertia remain challenges to the inflation outlook.
Assuming a normalization in energy prices and a prudent policy mix in 2H26, we maintain our 30% year-end inflation forecast. We expect no change in the CBRT’s inflation forecast in the August Inflation Report, but we will closely monitor its communication regarding the future policy outlook. We expect the cost of funding to begin normalizing toward the policy rate from September onward and, provided conditions allow, the policy rate to decline to 36% by year-end.