Turkey's Inflation Trends

ISTANBUL (Reuters) – Turkey's annual inflation is expected to continue its decline in September, falling below the central bank's policy rate for the first time since 2021, according to a Reuters poll.

The median estimate from 19 economists predicts an annual inflation rate of 48.3% in September, down from 51.97% in August. Forecasts vary, ranging from 47.8% to 49.1%. Month-on-month, inflation is projected to rise by 2.2%, with estimates between 2% and 2.8%.

Monthly inflation peaked in January and February, influenced by a significant minimum wage increase and new-year price adjustments, before slowing to about 3.2% in March and April. After a dip in June, inflation slightly increased to 3.23% in July due to mid-year price adjustments.

In August, monthly inflation was 2.47%, attributed to a natural gas price hike for residential consumers, which was the first price adjustment in nearly two years.

Earlier this month, Turkey's central bank maintained its main interest rate at 50% for the sixth consecutive month, stating it remains vigilant to inflation risks while omitting references to potential tightening measures.

According to a recent research note from Bank of America, an initial interest rate cut is expected in December, as services inflation has not yet decreased and monthly inflation does not align with the central bank's targets. Despite the challenges faced by the real sector, the data indicates a soft landing rather than a hard landing.

Bank of America added that there’s no urgency for significant cuts due to slow adjustments and persistently high inflation levels, indicating that sticky services inflation and still high food prices pose risks to the central bank's year-end inflation target.

The central bank has raised rates by 4,150 basis points since June of the previous year and anticipates inflation to decrease to 38% by the year’s end and 14% in the following year. The government forecasts an inflation rate of 41.5% by the end of 2024.

The Reuters poll predicts annual inflation to decline to 43% by year-end, higher than the central bank's estimate, with forecasts ranging from 41% to 45%. The median estimate also anticipates inflation to reach 25% by the end of 2025.

The Turkish Statistical Institute is set to release the September inflation data at 0700 GMT on Oct 3.