Türkiye | Significant worsening in inflation trend

Summary

Consumer prices rose by 6.70% in January, higher than our expectation (5.7%) but parallel to the consensus (6.6%) and annual consumer inflation accelerated slightly to 64.86% (vs. 64.77 prev.). We eliminate our previous downward bias and now expect consumer inflation to slow down to 45% by end 2024.

Key points

• Key points:
• Core prices (C index) rose by 7.6% m/m and 8.3% m/m if adjusted from seasonality (vs 3.3 m/m prev.), according to our calculations. The deterioration in services inflation trend was more pronounced due to recent wage adjustments.
• Despite the gradual depreciation of the currency, the trend in basic goods prices still accelerated on unanchored inflation expectations and distortions in the pricing behavior, requiring tighter financial conditions to achieve the targeted decline in monthly inflation trend.
• The current stabilized level in overall financial conditions, inadequate slow-down in consumption so far, acceleration in fiscal impulse, and still elevated inflation expectations keep challenges on the targeted disinflation path.
• In order to be consistent and reinforce credibility, the CBRT will likely revise its inflation forecasts slightly to the upside in the next inflation report and strengthen the hawkish stance with the likelihood getting higher for a future limited hike and other restrictive monetary tools.
• Based on our simulation under the assumptions of a gradual currency depreciation, household energy price hikes after the local election, recent wage adjustments and realized January inflation, we forecast consumer inflation to come down to 45% at the end of 2024.

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