Turkish inflation edges higher as downtrend stalls
Lead — Turkey's October inflation figures indicate a concerning break in the disinflation trend, as reported by ING. The monthly CPI data climbed to 2.58%, exceeding expectations and representing a modest increase in the annual rate to 29.77%, which is above the Central Bank of Turkey's (CBT) latest forecast. Despite this, core inflation, at 28.3%, offers a glimmer of hope, suggesting underlying pressures could stabilize. Per the full note , geopolitical risks and commodity prices will remain crucial in shaping inflation dynamics going forward.
What the desk is arguing
The desk interprets the recent uptick in Turkish inflation as a significant indication of persistent disinflation challenges, especially as October's CPI reading reached 2.58%, well above the expected 2.4%. This deviation hints at potential pressure on the CBT to adjust its current policies and reassess its disinflation outlook. Per the full note , the central bank's currency management, with nominal lira depreciation averaging 1.7% in October, plays a crucial role in shaping these results.
Furthermore, food, energy, and clothing prices have notably influenced this inflation landscape, contributing significantly to the monthly increase. The persistent high levels of food inflation remain a key risk area that could exacerbate inflationary pressures moving into the final quarter of the year.
Where it sits in our coverage
Our consensus target for Turkish lira stands at 1.075, with a range between 1.04 and 1.12. Notable firms include: - jpmorgan: 1.10 - bofa: 1.04
This desk's view aligns closely with the upper end of consensus, driven by the ongoing inflation pressures documented in the recent CPI data. While jpmorgan anticipates a similar target trajectory, bofa expresses a more bearish outlook, indicating divergence in expectations based on inflation trends.
How other firms see it
Aligned firms like jpmorgan share a perspective more optimistic regarding the Turkish lira's potential stabilization, whereas bofa counters with caution, anticipating weaker performance in the face of inflation challenges. The divergence reflects uncertainty among analysts about the CBT's ability to manage inflation effectively.
In this context, currency pairs such as USD/TRY are critical to watch, as they will be responsive to inflation data and further central bank decisions. The upcoming geopolitical environment will likely influence commodity prices like oil, further impacting inflation expectations in Turkey.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Turkish inflation rose to 2.58% in October, breaking the previous downtrend.
- 02Food, energy, and clothing prices significantly impacted inflation figures.
- 03Core inflation remains slightly below last year's levels, showing some stabilizing potential.
- 04Geopolitical and commodity price dynamics will be crucial for future inflation trajectories.
Market implications
Traders should monitor the USD/TRY pair closely, particularly if inflation trends continue to rise. A focus on commodity prices, especially oil, will be essential in gauging future CPI movements. The next major indicator could prompt adjustments from the CBT based on evolving inflation data.
Risks to this view
A rapid escalation in global commodity prices or unexpected shifts in geopolitical stability could significantly disrupt Turkey's inflation metrics, leading to a more aggressive policy response from the CBT. If the annual inflation rate exceeds forecasts consistently, it could trigger market volatility and shift trader sentiment.
Older quick take Quick take Published 09:33 Turkey Turkish inflation edges higher as downtrend stalls Slightly higher-than-expected October CPI data led to a break in Turkey's inflation downtrend, exposing continued challenges to disinflation efforts Istanbul, Turkey Monthly inflation in October came in at 2.58%, above market consensus and our 2.4% call, driven by unprocessed food, energy, and clothing. The annual figure ticked up to 29.77% (vs the Central Bank of Turkey's forecast of 28% in the latest inflation report) from 29.73% a month ago. This reflects volatile seasonal data, but isn't too alarming for the central bank.
Core inflation (CPI-C) rose by 2.1% month-on-month, below the level recorded last year, leading to a drop in the annual rate to 28.3%. The central bank’s management of the currency – with modest nominal lira depreciation of 1.7% on average in October and 18.4% year-on-year, significantly below inflation over the same period – limited the increase, as the CBT maintains its exchange rate policy to support the disinflation objective through the cost channel. In October, PPI stood at 1.6% MoM and 27.4% YoY, and has floated in the 26-28% range over the last 12 months.
A significant part of the monthly increase was driven by food products, in addition to clothing and apparel, basic metals and crude petroleum and natural gas. Against the current geopolitical backdrop, global commodity prices, particularly oil prices, will remain the key risk factors for PPI and CPI in the near term. Preliminary seasonally adjusted data, set to be published by TurkStat and closely monitored by the CBT, indicate that after a strong improvement in September, the preliminary seasonally adjusted figures showed an increase in the headline and major sub-indices, i.e., goods and services.
Evolution of annual inflation (%) Source: TurkStat, ING "> Source: TurkStat, ING A breakdown of the data shows that: Food and clothing made the largest contributions to the headline (0.84ppt and 0.82ppt, respectively). Benign processed food recorded a pronounced slowdown in comparison to the same month last year, limiting the adverse seasonal effects from processed food. Clothing, on the other hand, spiked on the back of seasonality, though it remained close to the four-year average.
The transportation group followed with a 0.36ppt contribution to the headline, driven by higher energy prices and the gradual unwinding of special consumption tax (SCT) on fuel products. The housing group was another major contributor as a result of rent and energy-related items, with a monthly impact on the headline of 0.34ppt. As a result: Goods inflation moved up to 25.6% YoY, while core goods inflation also increased, reflecting the impact of clothing and footwear, despite benign durable and other core goods, given the CBT’s tight grip on the exchange rate supporting disinflation in this group.
Services inflation maintained a downtrend, falling to 36.6% YoY, while rent declined further, with gradual normalisation continuing for more than two years. Annual inflation in expenditure groups Source: TurkStat, ING "> Source: TurkStat, ING Overall, while slightly higher-than-expected CPI data ended the downtrend in October, we continue to expect that annual inflation is likely to remain below 30% at the end of this year. Uncertainty surrounding oil prices – along with their spillover effects on other commodity prices – continues to pose risks to the inflation outlook in the near term, while a sustained escalation in US-Iran tensions should rapidly add to pricing pressures given the ongoing unwinding of the sliding scale mechanism.
In the latest MPC meeting, the CBT altered its wording and shifted the emphasis to the magnitude and timing of future policy steps from “monetary policy decisions”. This change implies that unless there is a material shift in the conditions that prompted the easing cycle, the Bank is likely to continue its rate-cutting process in December as well. In our view, October inflation is unlikely to be a game changer here.
The key risk will remain the Middle East conflict and a shift in the disinflation path. The CBT will also continue to closely monitor demand conditions, international reserves and depositor behaviour to determine future policy actions. The inflation report due for release on 12 November should also provide additional evidence on inflation developments and the scope for further monetary easing in the period ahead.
Turkey PPI Monetary Policy CPI inflation Core inflation Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Muhammet Mercan Chief Economist, Turkey Older quick take
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