Turkey’s Inflation Trends in September

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 indicated annual inflation at 48.3% for September, a decrease from 51.97% in August. Predictions ranged from 47.8% to 49.1%. Month-on-month, inflation is estimated to rise by 2.2%, with forecasts between 2% and 2.8%.

Monthly inflation was notably high in January and February, primarily due to significant minimum wage hikes and new-year price adjustments, slowing to about 3.2% in March and April. Following a dip in June, inflation rose again to 3.23% in July amid mid-year price changes.

In August, monthly inflation reached 2.47%, influenced by a residential natural gas price increase, the first adjustment in nearly two years.

Earlier this month, Turkey’s central bank decided to maintain its main interest rate at 50% for the sixth consecutive month, citing ongoing concern over inflation risks but omitting references to potential tightening.

Bank of America noted in a recent report that it anticipates an initial rate cut in December. This prediction is based on the fact that services inflation has yet to decrease and monthly inflation does not align with the central bank’s expectations.

The report emphasized that while the real sector faces challenges, data suggests a soft landing rather than a severe downturn. The team argued against rapid significant cuts due to the gradual adjustments and sustained high inflation levels, with particularly persistent services inflation and elevated food prices posing risks to the central bank’s year-end inflation target.

Since June of last year, the central bank has increased rates by 4,150 basis points and projects inflation at 38% by year-end and 14% next year. According to the medium-term program, the government is forecasting an inflation rate of 41.5% by the end of 2024.

The Reuters poll anticipates annual inflation falling to 43% by year-end, exceeding the central bank’s estimate, with predictions ranging between 41% and 45%. Additionally, the poll indicates inflation dropping to 25% by the end of 2025.

The Turkish Statistical Institute will announce September’s inflation data at 0700 GMT on October 3.