Türkiye | Much faster improvement in CPI trend

Consumer prices rose by 3.28% m/m in Nov, lower than both our expectation (4.0%) and cons. (3.7%), while annual inflation accelerated to 61.98% (vs. 61.36% prev.). Considering the recent lower than expected realizations coupled with the positively surprising rate hikes, the year-end consumer inflation might be around 65%.

Key points

• Key points:
• Annual energy inflation climbed up to 21.2% from 11.6% the month before, since the households’ natural gas consumption, which was fully subsidized by the government up to 25m3, started to exceed this threshold led by the colder weather conditions. We calculate the direct impact of natural gas usage on CPI as nearly 1.25 percentage points.
• Core prices (C index) surprised to the downside, decelerating to 2.0% m/m in November from 3.7% m/m the month before. However, monthly services prices slowed down limitedly to 2.8% from 3.8%.
• Our inflation trend indicators keep improving but continue to highlight risk from inertia indicating the more limited slow-down in core inflation trend compared to other headline indicators.
• We observe faster than expected deceleration in inflation as a result of cooling domestic demand and managed depreciation of the currency. Led by slower than expected Oct and Nov inflation realizations, the end of the year consumer inflation in 2023 will likely get nearer to 65% in the absence of any substantial shock.
• If the CBRT remains hawkish and keeps TL deposit rates much more restrictive with regulations, we would acknowledge the downside risks on our most recently revised inflation projections of 45% for the end of 2024.

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