Türkiye | Inflation trend fell only limitedly

Summary

Consumer prices rose by 3.16% (68.5% y/y) in March, lower than both our expectation and consensus (3.5% and 3.6%, respectively). We expect annual consumer inflation to reach 45% by 2024 end under the assumption of 3.5% GDP growth in 2024, gradual currency depreciation and continuing demand restrictive policies.

Key points

• Key points:
• Inflation trend in 3-month moving average started to fall but very limitedly to nearly 4.6% in Mar24 (vs. 4.8% in Feb and 3-3.5% in Dec23), while the trend in core B and core C inflation still worsened towards 5-5.5%.
• Services inflation continued its upward pressure on core prices, rising to 4.2% m/m (4% m/m if seasonal adjusted and 7.1% in 3-month trend), mainly due to a broad-based increase in its sub-items excluding transportation services.
• Led by the increasing FC demand of the residents ahead of the local election, the acceleration in currency depreciation in March resulted in high price increases in exchange rate sensitive goods, where goods prices rose 2.9% m/m (3.2% m/m if seasonal adjusted and 3.1% in 3-month trend).
• Our big data consumption indicator shows that goods consumption, mostly due to the durable goods, picked up by the end of March. According to our calculations, the financial conditions have started to become tighter but the tightening occurs very slowly, making it hard to start anchoring inflation expectations.
• We assess an increasing likelihood of more aggressive tightening after the election, which might put downside risk on our exchange rate and inflation forecasts. We will assess post-election foreign currency flows and inflation trend, and revise our projections, accordingly.

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