Türkiye | Upward CPI surprise led by core prices

Summary

Consumer inflation climbed up to 5.03% m/m, higher than consensus and our expectation (both at 4.3%), while annual inflation declined further to 42.12% on favorable base effects. We maintain our year-end 2025 inflation forecasts of 26.5%, despite the existence of more pronounced upward inflationary risks.

Key points

• Key points:
• Reinforced by the upward surprise in core prices, the underlying monthly inflation trend (3-month average of seasonally adjusted monthly inflation) deteriorated to 2.7% in January (vs. 2.4% prev.), according to our calculations. Relatively weaker unprocessed food inflation prevented a further deterioration.
• Backward-looking pricing behavior, high inflation expectations, wage adjustments at the beginning of the year and the limited easing in demand so far led to widespread high deterioration in service inflation. Despite the stable exchange rate, basic goods inflation excluding clothing also continued to deteriorate.
• Food prices remained relatively moderate, driven by unprocessed food; while processed food, particularly on bread prices, showed a significant increase. Energy prices, on the other hand, rose mainly due to the upward adjustment in water prices.
• The modest increase in the minimum wage helped cost-push factors to remain relatively subdued as producer prices increased by 3.1% on a monthly basis, leading its annual inflation to further decrease to 27.2%.
• High inertia, unanchored inflation expectations and the likelihood of fiscal policy to remain inadeqaute to support disinflation, continue to exert upward pressure on inflation outlook in the near term. We expect the CBRT to keep its inflation forecasts unchanged in the first Inflation Report of the year (to be released on Feb 7th) but the output gap projections and the communication of the CBRT will be crucial. We keep our year-end inflation forecast of 26.5% for 2025 for the time being. We will monitor the second round effects and inflation trend with policy actions and revise it accordingly.

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