Türkiye | Inflation trend improved only limitedly

Consumer prices rose by %2.47 m/m in August, higher than our expectation (2.2%) and consensus (2.3%). As a result, annual consumer inflation came down to 51.9% from 61.8% previously. We forecast inflation trend to improve; reaching 1.5-2% monthly in 4Q24 and finish the year annually at 43% in 2024 and 25% in 2025.

Key points

• Key points:
• Underlying consumer inflation trend (3-month moving average of seasonally adjusted inflation) slightly eased to 2.8% from the previous 3%, supported by the decline in food prices; while core prices trend worsened led by services inflation reflecting backward indexation and second round effects.
• Energy inflation remained strong (6.8% m/m) due to 24% natural gas price hike for residential use (0.6pp direct impact on headline inflation) in August and lagged effects of July price hikes, adding new dynamic effects.
• Regarding cost push factors, monthly producer price inflation eased further to 1.68% in August, resulting in an annual inflation of 35.8%. Despite August’s uptick, deceleration in yearly currency depreciation compared to previous months and weaker commodity prices reduce cost pressure on consumer prices.
• Even though the rebalancing in economic activity has become clearer with further normalization in domestic demand, unanchored inflation expectations, strong inertia in services and increasing pressure over the currency maintain risks to the upside on inflation outlook.
• Given our expectations of output gap turning into negative and a real appreciation trend, we expect inflation trend to decline to slightly below 2% by end 2024 (vs. 1.5% target of the CBRT in 4Q24).

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