Turkish inflation falls further in August
The Turkish inflation data for August reveals a mixed picture, with the annual rate declining to 31.5%, slightly better than expectations but still significantly above the Central Bank of Turkey's (CBT) target of 24%. This gradual disinflationary trend underscores the ongoing challenges the central bank faces in stabilizing prices, particularly given external pressures from global commodity prices. Per the full note , the CPI increased by 1.84% month-over-month, indicating that the path towards the CBT's inflation targets remains fraught with difficulty, especially amid rising energy costs. Institutional traders should monitor how this interplay influences the Turkish lira in forthcoming sessions, especially as the market looks towards future central bank decisions.
What the desk is arguing
The desk views the recent inflation figures as indicative of the broader challenges facing the Turkish economy in achieving sustainable disinflation. While the slight improvement in annual inflation rates reflects some progress, the monthly rate exceeds expected figures, suggesting that root inflationary pressures remain entrenched in the economy. The desk frames this as a narrower window for significant monetary policy shifts by the CBT, as the average nominal depreciation of the TRY aligns unfavorably against inflationary trends.
Key data points include the slightly better-than-expected reading of 1.84% MoM for August CPI against the consensus of 1.95% and PPI standing at 2.6% MoM, highlighting persistent cost pressures. Moreover, core inflation continued its upward trajectory, complicating the central bank's efforts to stabilize price levels even as energy costs have surged amidst geopolitical tensions.
Where it sits in our coverage
Currently, our consensus target for the EUR/TRY stands at 1.075, with a range from 1.04 to 1.12. Notable firm forecasts include: - jpmorgan: 1.10 (Mar-26) - bofa: 1.04 (Mar-26)
The desk's outlook aligns closer to the upper end of consensus, reflecting a cautious optimism about disinflation coupled with concerns over external shocks potentially forcing a re-evaluation of central bank policy.
How other firms see it
Firms aligned with a more bullish outlook on TRY include jpmorgan, suggesting a stronger currency long-term, while bofa presents a more bearish stance, predicting continued weakness. This divergence highlights differing views on Turkey's ability to navigate its inflation crisis without further policy interventions.
For traders, the EUR/TRY movement will likely reflect underlying tensions between inflationary pressures and central bank actions, with any significant shifts in core inflation or global oil prices potentially guiding near-term volatility.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01August inflation decreased to 31.5%, showing slight progress but remains above CBT's target.
- 02Monthly CPI growth was 1.84%, marginally better than expected, indicating limited disinflation.
- 03Core inflation concerns persist, complicating the CBT’s efforts to stabilize prices.
Market implications
Market participants should watch the EUR/TRY closely, particularly as inflation dynamics could influence CBT policy changes. The current perception of stability hinges on how external factors, particularly oil prices, influence local inflation trends in the coming months.
Risks to this view
A significant spike in global commodity prices or shifts in geopolitical dynamics could undermine any gradual improvements in inflation, potentially prompting a shift in policy from the CBT that may further weaken the lira.
Older quick take Quick take Published 10:25 Turkey Turkish inflation falls further in August Slightly better-than-expected August CPI data pushed annual inflation lower, but the pace of disinflation remains slow, underscoring the challenges of bringing inflation down Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Muhammet Mercan Chief Economist, Turkey Monthly inflation in August was 1.84% vs the market consensus of 1.95% (but above our call of 1.6%), while annual inflation maintained a downtrend with a slight decline to 31.5% (vs the Central Bank of Turkey's target of 24% and forecast of 28% in the latest inflation report) from 31.8% a month ago. Despite energy and education pushing inflation higher, food inflation was relatively benign. Core inflation (CPI-C) rose by 1.8% MoM, slightly above last year's level, resulting in an increase in the annual rate to 30.1%.
The managed currency by the central bank, with modest nominal TRY depreciation – by 1.6% in August on average and 16.9% YoY, significantly below inflation in the same period – limited the increase. This indicates that the CBT maintains its exchange rate policy, which continues to support the disinflation objective through the cost channel. In August, PPI stood at 2.6% MoM and 27.8% YoY, floating in the 26-28% range since last October, while a significant part of the monthly increase was driven by coke and refined petroleum products in addition to electricity and gas production.
Global commodity prices and particularly oil prices in the current geopolitical backdrop will remain the key risk factors to the 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 the seasonally adjusted headline CPI showed a limited recovery after the temporary uptick in July, though the services figure reinforced long-held views about inertia in this group. Evolution of annual inflation (%) Source: TurkStat, ING "> Source: TurkStat, ING A breakdown of the data shows that: The transportation group made the largest contribution to the headline figure (0.82ppt), driven by diesel prices and transportation services.
This happened despite a new scheme that reduced the special consumption tax on diesel to TRY 0 per litre in the second half of August. From the end of August until the end of 2026, the tax will be TRY 3 per litre, before reaching TRY 13.90 per litre as of January 2027. The new system should alleviate some of the near-term pressure on diesel pump prices.
Housing followed, attributable to rent and energy-related items with a monthly impact on the headline at 0.27ppt. Education, catering and alcoholic beverages & tobacco were other major contributors, with a 0.17-0.18ppt impact each on the headline. After the regulation to reduce backward indexation in education, the August (driven by tertiary education fees) and September readings will be key for the inflation outlook.
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