Türkiye | Higher trend inflation due to core prices

Consumer prices rose by %2.97 m/m in September, higher than our expectation (2.5%). The annual consumer inflation came down below 50% on the back of base effects, while the underlying consumer inflation trend worsened. We expect inflation to decrease to 43% and 25% by the end of 2024 and 2025, respectively.

Key points

• Key points:
• Underlying consumer inflation trend (3-month moving average of seasonally adjusted inflation) worsened to 3.1% from 2.8% previously (vs. the Central Bank’s expectation of 2.5% in 3Q), led by the acceleration in core prices driven by strong services inflation and the pick-up in goods prices.
• Services inflation on seasonally adjusted series deteriorated further on the back of backward indexation and second round effects. The rent, education and transportation inflation were the main factors fueling services inflation. Despite the moderation in domestic demand, basic goods price inflation accelerated as well.
• Weaker energy and commodity prices coupled with relatively stable currency maintained the weakening in cost push factors as the monthly producer price rose by 1.37% in September.
• Despite the ongoing moderation in domestic demand and weak cost push factors, inflation expectations remain elevated and continue to pose a clear risk to the CBRT's inflation forecast for 2025.
• Although the inflation trend in 4Q24 may create room for the CBRT to consider a rate cut, upside risks require a cautious stance. Therefore, we had shifted our first rate cut expectation from November to December, with a 250 bps cut while anticipating credit growth caps to be maintained at least in 1Q25.

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