FT/Adam Samson: Turkish inflation cools for first time in 8 months
Turkey’s inflation rate has cooled for the first time in eight months, bolstering policymakers’ hopes that a long-running cost of living crisis is easing a year after Ankara launched a sweeping economic turnaround plan.
The decline in inflation is one of the strongest signs to date that Turkey’s pivot away from unconventional monetary policy following President Recep Tayyip Erdoğan’s re-election in May last year is starting to bear fruit.
Still, several economists noted that there was a wide chasm between the official figures and another data set that measures prices in Istanbul, home to a fifth of Turkey’s population.
The Istanbul Chamber of Commerce (ITO) found prices rose at an annual rate of around 82 per cent in Istanbul in June. Selva Demiralp, an economist at Istanbul’s Koç University who closely follows inflation data, noted that when compared with the ITO figures, the national numbers were “surprisingly low”.
There is also a risk of a fresh setback in July, when authorities are likely to raise prices that are under their control, such as electricity tariffs, said Hakan Kara, a former Turkish central bank chief economist.
William Jackson, chief emerging markets economist at London-based Capital Economics, said the larger-than-expected decline in Turkish inflation in June marked the start of a new phase of the disinflation process.
In a note to clients, he predicted much steeper falls in July and August. “Still, it’s likely to be a bumpy path down, with inflation unlikely to drop below 40% until 2025,” he wrote.
No economist surveyed by Bloomberg predicted such an abrupt deceleration. The median forecasts of analysts were for an annual rate of 72.6% and a 2.2% monthly gain.
The government’s lira bonds rallied after the data release, with the yield on two- and 10-year securities falling 82 basis points and 36 basis points, respectively. The Turkish currency briefly erased losses and was trading little changed as of 11:31 a.m. in Istanbul.
Inflation may slow to “50% or even slightly lower” in August, said Tufan Comert, director of global markets strategy at BBVA in London.
“After that, the fall in inflation will slow down as the favorable base effect starts to dissipate, but the effect of the tight monetary policy, and hence the cooldown in the economy, will become more effective,” Comert said.
Consumer prices rose by 1.64 percent monthly in June, bringing the annual inflation rate to 71.6 percent, down from 75.45 percent in May, data from the Turkish Statistical Institute (TÜİK) have shown.
The monthly inflation was lower than the market expectation for a 2.2 percent increase in consumer prices. This was also the lowest monthly inflation recorded in 2024.
“The disinflation process has begun,” Finance Minister Mehmet Şimşek said, commenting on the latest inflation numbers, reiterating that the economic program will be implemented with determination until price stability is achieved.
The inflation trend implied by the annualized seasonally adjusted three-month moving average is consistent with the year-end target, Şimşek wrote on social media platform X.
“The success we have achieved in many areas such as financial stability, sustainable current account deficit, reserve accumulation and exit from the gray list will also be evident in disinflation, which is the main goal of our program,” the minister said.
In May, the Central Bank lifted its inflation forecast from the previous 36 percent to 38 percent for the end of 2024. In the medium-term program, the government’s inflation target for 2024 is 33 percent.
Housing prices advanced 3.8 percent month-on-month in June, bringing the annualized increase to 94.7 percent.
Food and non-alcoholic beverage prices increased by 1.8 percent monthly and 68.1 percent annually, showed data TÜİK released on July 3.
Education prices rose 3.5 percent, while the monthly increase in restaurant and hotel prices was 3.1 percent.
In the statement regarding its interest rate decision in June, when it kept its main policy rate unchanged at 50 percent, the Central Bank warned that the high level of and the stickiness in services inflation, inflation expectations, geopolitical risks, and food prices keep inflationary pressures alive.
Communication costs were 2.5 percent higher in June compared with the previous month.
Clothing and transportation prices declined by 0.6 percent and 0.13 percent month-on-month, respectively.
The C-index, one of the Central Bank’s favored core inflation indicators, which excludes the prices of energy, food and non-alcoholic beverages, gold and tobacco products, increased 1.73 percent in June month-on-month, easing from the previous month’s 3.76 percent.
The monthly rise in the B-index, which excludes unprocessed food, energy, alcoholic beverages and tobacco products and gold, eased from 3.8 percent to 1.9 percent.
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