Türkiye | Feb CPI surprised to the downside

Summary

Consumer prices rose by 2.27% m/m in February, lower than both consensus (3%) and our expectation (2.9%), leading to a decline in annual inflation (39.1%). We maintain our 2025 end inflation forecast of 29%, which we had revised from 26.5%, following the upward revision of the CBRT in the first inflation report of the year.

Key points

• Key points:
• We calculate the seasonal adjusted monthly inflation as 2.3% (down from 3.2% in January), which leads the three-month-average trend to decelerate to 2.5% in February (vs. 2.6% prev.). Underlying inflation trend as an average of six indices followed by the CBRT, remained stable around 2.45%.
• The decelerating inflation trend stemmed from both food prices excluding processed food and core prices on top of basic goods. Yet, the services inflation trend remained to be stable at 3.8%, confirming the stickiness of its subcomponents and strong inertia, despite the removal of the upward adjustment in medical examination contribution fees, which had contributed to January inflation.
• The cost push factors alleviated in February with 2.1% m/m (vs. 3.06% prev.) and 25.2% y/y on the back of weakening impact from wage adjustments and real appreciation of the currency.
• Albeit slightly, the ease in inflation trend in February clears out further space for the CBRT to continue rate cuts. We maintain our expectation of 250 bps rate cut in March MPC meeting to be held this Thursday, where we will evaluate the future pace of cuts.
• High inertia in services inflation, unanchored inflation expectations, domestic demand-driven growth dynamics, potential upward adjustments in households utility prices and other administrative prices keep upside risks on inflation outlook. Under the assumptions of a stronger real appreciation, at least 1pp of GDP non-primary fiscal savings, credit growth caps for longer and no additional minimum wage hike in 2H25, we expect year end inflation to be 29%. The timing and the split of the upcoming administrative price hikes will determine the path, whether we will realize sustainably below 2% monthly inflation trend later this year.

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