Türkiye | Headline inflation reached 85.5%

Summary

Consumer price inflation accelerated further by 3.54% in October, parallel to market expectations but below our expectation (4.5%), which led to an annual inflation of 85.5%. We expect consumer inflation to remain in the range of 65% to 70% at the end of 2022 due to the weaker realizations in the last few months.

Key points

• Key points:
• Food prices continued to gain momentum (5.3% m/m), especially due to sharp increases in fresh fruits and vegetables (14.3 m/m).
• Despite stronger cost push factors, gradual currency depreciation and strong aggregate demand, core prices increased less than expected (3.2 m/m vs. exp. 4.6% m/m).
• Weaker adjustment in consumer prices despite the cost factors resulted in the gap between CPI and domestic PPI to continue to widen further with 72.2pp.
• Despite CBRT maintains an optimistic outlook on inflation with a strong disinflation trend in 2023 (22.3%), there might not be a large room for optimism given the high priority on growth, which would keep the output gap positive at least until the elections.
• We expect that in the absence of negative shocks, favorable base effect would enable annual inflation to decrease around 70% at the end of 2022 and 55% on average in 1Q23 but inflation could remain between 45% and 50% before declining to 45% at the end of 2023.

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