Türkiye | Still strong inflation trend keeps risks alive

Consumer prices rose by 3.18% in April, parallel to our expectation of 3.1% and slightly lower than the consensus of 3.4%, which led to an annual inflation of 69.8%. Given the expectations of a tighter policy mix in the coming period, we acknowledge slight downside risk on our current year-end inflation forecast of 45%.

Key points

• Key points:
• The seasonal adjusted monthly CPI remained almost the same at 3%, while its 3-month trend eased to around 3.5% (vs. CBRT target of 1.5% in 4Q24), due to the removal of the very high January CPI data. Core inflation trend (in both B and C indicators) also eased below 4%, where basic goods inflation trend came under 3% but services trend remained sticky at above 4.5%.
• The main drivers of the services inflation were the significant monthly acceleration in restaurant & hotel and transportation services prices. The distortions in pricing behaviour due to unanchored inflation expectations and very slow deceleration in consumption up to April (wage hikes and huge availability of credit card spending) have kept services prices resilient, resulting in a strong inflation inertia.
• Our big data indicators point out a momentum loss in consumption of both goods and services in April, though it is early to call it as a fast normalization considering the calendar day effects due to the long holiday.
• We do not expect a significant revision in the CBRT’s inflation forecasts in the second Inflation Report of the year, to be released on May 9th. We asses that the CBRT focuses on lowering the year-end inflation within the forecasted range (30%-42%) rather than reaching the point interim target (36%).
• We maintain our 45% year-end inflation forecast but also evaluate that downward risks on our forecast has increased on the back of our expectations of a tighter policy mix in the coming period.

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