Türkiye | Inflation trend weakens clearly in June

Consumer prices rose by 1.64% m/m in June, well below our expectation (2.24%), which led to an annual inflation of 71.60%. We expect the monthly consumer inflation trend to continue to weaken, driving the annual inflation down to 45-50% range by September and to 43% by the end of 2024.

Key points

• Key points:
• According to our calculations, consumer prices inflation dropped down to 1.93% m/m (3.65% m/m prev.) on a seasonally adjusted basis, which led the 3-month average trend to 2.86% m/m (vs. 1.5% target of the CBRT in 4Q24). The slow-down in the core prices was the main driver behind the clear deceleration, supported by basic goods and services.
• Some moderation in domestic demand and the recent stable currency led further improvement in the basic goods inflation, supported also by the decline in the automobile prices on the back of the upcoming change in regulations. Services prices also slowed down thanks to the dying out of the wage indexation impact and the recent normalization in demand.
• Cost push factors continued to alleviate with the significant slowdown in the energy prices and the supportive real currency appreciation. As a result, the monthly producer prices inflation declined even further in June to 1.4% m/m (2.0% m/m prev.).
• Recent faster than expected improvement in inflation could be temporary since the electricity price hike in July (%38), the removal of the upper ceiling in rent price increase (25%) and the automatic special consumption tax rate adjustment on tobacco and fuel prices could underpin the consumer inflation in July.
• Given still high inflation expectations, a limited room for a gradual easing cycle might arise in 4Q24. Though, the tight monetary stance should be supported by the clearer fiscal consolidation to achieve faster rebalancing in the economic activity.

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