Türkiye | Worsening inflation trend keeps challenges

Consumer prices rose by 4.53% in Feb, higher than our exp. and cons. (4.0% both), and annual inflation accelerated to 67.07% (64.86% prev.). Given the strong realizations in Jan. and Feb, we expect tighter financial conditions to be pursued in post-election period and maintain our 2024 year-end inflation expectation of 45%.

Key points

• Key points:
• Core inflation (both B and C indexes) remained high with around 4% m/m in seasonal adjusted terms (vs. 7-7.5% m/m prev.), leading to a 3-month trend accelerating to nearly 5%, according to our calculations. The deterioration in inflation trend continued mainly due to the strong services inflation.
• Food prices rose by 8.5% m/m, the highest increase in the last five months, driven by a broad-based acceleration in its sub-items.
• According to our big data information, private consumption has most recently started to gain pace; and our financial conditions index signals somewhat an easing in overall financial conditions, keeping the challenges on the inflation outlook.
• We expect tighter monetary stance via credit policies and quantitative measures, and some level of fiscal prudence in the post-election period, which will help rebalance the economy and anchor inflation expectations towards the CBRT’s interim inflation targets (36% for 2024 end, 14% for 2025 end).
• Under the assumption of a gradual currency depreciation, expectations of household energy price hikes and the current policy rate throughout the year, we expect annual consumer inflation to reach 45% by 2024 year end. If a clearer commitment against inflation prevails, we assess the likelihood of hiking the policy rate above 45% has increased. If so, we will revise our projections, accordingly.

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