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Inflation in Turkey is unexpectedly slowing down. For the first time in four months

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For the first time since June months, inflation in Turkey slowed down and fell, marginally but still, from 61.53 to 61.36 percent year on year. This result is below market forecasts, which predicted inflation at 62.1 percent.

Inflation in Turkey it unexpectedly slowed down. For the first time since June, the dynamics of price growth decreased – from 61.53 to 61.36 percent. Every year. This result is lower than market forecasts of 62.1%. As tradingeconomics.com notes, this occurred “due to the fading impact of the significant depreciation of the lira over the summer and tax increases after the elections.”

IN Turkey the most important categories of the consumer price index are food and non-alcoholic beverages (25%), transport (17%), housing, water, electricity, gas and other fuels (14%).

Bartosz Sawicki, an analyst at Cinkciarz.pl, points out that although today’s reading is a big surprise, it does not change the general assessment that the medium and long-term inflation prospects remain unfavorable and burdened with significant risks.

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“Just yesterday, the Turkish central bank presented new projections. At the end of December, inflation is expected to reach 65% y/y. Price growth will reach its peak in a few months, the CPI dynamics in May is expected to increase to approximately 73% y/y, and slow down to 36 percent by the end of next year. Although the forecasts have been revised upwards, they may still seem overly optimistic,” Sawicki points out in a comment sent to the editorial office.

Turkish currency ‘deepens historical bottom’

The analyst points out that the lira is constantly depreciating and “deepening the historical bottom”.

“We assume that the USD/TRY exchange rate will continue to climb to the 30.00 barrier. The latest estimates of the central bank confirm that the impact of the weakness of the Turkish currency on prices is intensifying. The development of the conflict in the Middle East is also a threat,” he points out, explaining that the escalation of actions may lead to aggravation of macroeconomic problems, including: worsen the situation in the balance of payments through an increase in the prices of energy raw materials and fuels or a decline in revenues from tourism.

Sawicki points out that Turkey faces a very difficult task of controlling inflation in extremely negative real conditions interest rates. “Although since the May elections they have been significantly increased, even sharply, from 8.5 to 35 percent, it is still too little in the face of inflation of 60 percent,” he writes in a commentary.

“The coming months will be a real test of the determination of the monetary authorities and the patience of President Recep Erdogan to follow the path of market reforms. There are many voices that the cost of money will be increased at most once before the local elections in March. Today’s data may become an excuse for this. If the monetary authorities if they refrain from further increases, attempts to regain the credibility that was destroyed in recent years will end in failure after a few months,” a Cinkciarz.pl analyst sums up Turkey’s economic future.

Main photo source: Photo Oz / Shutterstock

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