Türkiye | Inflation outlook becomes more challenging

Consumer prices rose by %2.88 m/m in September, higher than our expectation and consensus (2.7% vs. 2.5%), while the monthly consumer inflation trend eased only limitedly. We now expect year-end inflation to be nearly 45% and risks on our 2025 year-end forecast of 25% become clearly tilted to the upside.

Key points

• Key points:
• Underlying core inflation trend (3-month moving average of seasonally adjusted inflation) only limitedly came down on the back of the deceleration in services inflation while basic goods price inflation deteriorated further due to mainly clothing inflation.
• Seasonally adjusted food inflation slightly increased due to processed food inflation and energy inflation was boosted by the increase in fuel prices.
• Cost push factors remained limited thanks to stable currency and supportive commodity prices as producer price inflation decelerated further to 1.29% m/m and 32.2% y/y in October.
• Despite some moderation in domestic demand, weakening cost push factors and continuing real appreciation, deteriorated pricing behavior and unanchored inflation expectations fueled by the gradual and incomprehensive approach so far continue to impose risks on inflation outlook.
• Considering the current momentum, annual consumer inflation will likely finish the year at around 45%. Given the dynamic effects, and the increasing risks of more generous wage hikes and upward adjustments in the administrative prices at the start of the year, risks on our 2025 year-end forecast of 25% become clearly tilted to the upside. We will monitor the messages of the CBRT in the last inflation report of the year on Nov 8th and revise our inflation and interest rate forecasts, accordingly.

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