Türkiye | Renewed inflationary pressure

Consumer prices rose by 9.49% in July, higher than our expectation (9%) and market consensus (8.6%) while annual consumer inflation accelerated significantly to 47.8% from 38.2% the month before. We expect annual consumer inflation to accelerate to near 65% at the end of 2023 and only decline to 35-40% by 2024 year-end.

Key points

• Key points:
• Recent tax hikes would have 5 percentage point impact on consumer inflation at the end of 2023. Sharp depreciation in currency and high adjustment in wages led cost push factors to accelerate as the cumulative increase in domestic producer prices in the last 2 months realized as 14.1%.
• Core prices (C index) posted a 9.6% monthly increase on the back of basic goods and services, which led annual core prices inflation to reach 56.1% while further sharp deterioration in services prices signaled strengthening in inertia.
• Food prices (7.6% mom) increased further on top of the increase in fuel prices, dry season, high wages, weak supply and most importantly rise in agricultural input prices such as seed and fertilizer etc. due to the sharp currency depreciation.
• CBRT revised its inflation forecasts significantly to the upside, by 35.7pp to 58% for 2023 and by 24.2pp to 33% for 2024. Given deterioration inflation expectations and high inflationary trend on top of only gradual policy rate hikes, there are clear upside risks on the forecasts.
• Gradual policy rate hikes would be supported via macroprudential polices to achieve disinflation path in the near future. If the policy rate will remain far below the inflation in the coming period, anchoring inflation expectations will be challenging.

Authors

Geographies

Topics

Tags