Türkiye | Upsurge in services CPI keeps trend high

Summary

Consumer prices rose by 4.75% m/m in September, close to our expectation and market consensus (both 4.8%), leading annual inflation accelerate to 61.5%. Assuming a delayed adjustment in the currency and a soft landing in growth, we expect consumer inflation to reach 70% by end 2023 and slow down to 50% at the end of 2024.

Key points

• Key points:
• Core prices (C index) inflation maintained its strong upward trend increasing by 5.3% m/m, which led annual core prices inflation geared up to 69% from 65% in August, closer to its record level in the current series seen in October 2022 (70.4% y/y).
• Although basic goods prices slowed down significantly in September (2.6% m/m vs. 8.6% prev.), the 7.9% monthly increase in service prices remained remarkable, especially led by rental prices and transportation services prices. Thus, services prices recorded the new record high rate of 86.5% in annual services inflation.
• Thanks to the decelerating lagged impact of currency depreciation and favorable seasonal factors, the increase in food prices geared down compared to previous months rising by 3.2% m/m, but remained well above the its seasonal average of 1.1% in the last 7 years.
• The indirect impact of the recent 20% price hike of natural gas and electricity for industrial users on consumer prices will be subdued with near 1pp; however, we expect the delayed utility price hikes for households will be finally implemented in the coming period, which will reinforce inflationary pressure.
• We forecast the consumer inflation moving upward to around 85% till May on base effects and wage adjustments at the start 2024, before coming down to 50% by the end of 2024 if the expected economic stabilization will finally occur and the pace of inflation decelerates.

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