Türkiye | Temporary jump in inflation trend in July

Consumer inflation increased by 3.23% m/m in July, slightly lower than our expectation, while the annual inflation declined to 61.8% from 72% in June on favorable base effect. We expect the annual inflation to decline below %50 as of September and fall further to 43% at the end of 2024.

Key points

• Key points:
• Excluding the impact of electricity price hike (38%), tax adjustment in fuel and alcohol and tobacco prices (1-1.5 pp on monthly figure), the deterioration in monthly inflation remains more limited.
• The increase in services inflation led to the worsening in core inflation, signaling still robust inertia while basic goods prices remained subdued.
• August inflation could remain solid as well, considering second round effects, ongoing tax adjustments in tobacco and natural gas price hikes (38%, having 1pp direct impact on monhtly inflation).
• Unachored elevated inflation expectations, still inflationary demand conditions and strong inertia keep upside risks on inflation outlook alive.
• We expect the fiscal policy to be more supportive to the rebalancing in the economy in the second half of the year. Otherwise, taking into account upside risks on inflation outlook, we have an upward bias on our short term policy rate expectations which involve limited rate cuts in 4Q24.

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