Turkey reports official inflation of 62% y/y in September

Turkey reports official inflation of 62% y/y in September
*ENAG is an Istanbul-based inflation research group of economists. / bne IntelliNews
By Akin Nazli in Belgrade October 3, 2023

Turkey’s official consumer price index (CPIinflation stood at 62% y/y in September versus 59% y/y in August and 38% y/y in June, the Turkish Statistical Institute (TUIK, or TurkStat) said on October 3 (chart).

At 62%, Turkey left Suriname behind, moving up to sixth place in the world inflation league. Turkey’s next 'rival' is Sudan, which released a 63% y/y inflation rate for February as the latest data provided.

The Istanbul-based ENAG inflation research group of economists, meanwhile, calculated a Turkish inflation figure of 130% y/y for September. The ENAG figure calculated for August was 128% y/y, while for June it was 109% y/y.

TUIK also gave an official figure of 47% y/y for producer price index (PPI) inflation in June.

Following the national elections held in May, another wave of currency depreciation coupled with widespread tax hikes dynamited pricing behaviour in the country once again.

In June, following the appointment of Turkey’s post-election new economic team, the central bank's monetary policy committee (MPC) launched its ongoing tightening process, taking the policy rate to 15% from 8.50% with a 650bp hike.

In July, it delivered 250bp. Both moves undershot market hopes and predictions.

In August, the MPC announced a policy rate hike of 750 bp, far larger than expected by the market. That took the benchmark to 25%. The market expectation was for 250bp.

On September 21, it delivered another policy rate hike of 500bp, taking the benchmark to 30% in line with market expectations. The gradual monetary tightening will continue, the MPC reiterated.

The authority also reiterated its anticipation of year-end inflation close to the upper boundary of the forecast range provided in the central bank’s inflation report.

In July, the central bank hiked its forecast for end-2023 official inflation to 58% from the 22% given in the May inflation report. Also, the upper boundary was moved up to 62% from 27%.

The underlying trend in monthly inflation is on course for a decline, the MPC has also observed. Its forecast was borne out as the rise in official inflation slowed following the sharp jumps of July and August.

Moreover, the central bank said it anticipated that official inflation would peak at just below the 70%-level in May 2024.

In September, in the new medium-term economic programme (OVP), the Erdogan regime pencilled in an end-2023 inflation expectation of 65%.

On November 2, the central bank will release its next inflation report and updated inflation forecasts.

The next MPC meeting is scheduled for October 26. As things stand, it seems another 500bp hike is on the way.

Sentiment on the global markets, meanwhile, remains turbulence-free despite the latest rise in US Treasury yields. Nevertheless, the USD Index (DXY) rose to the 106s from the 99s in July.

As a result, on September 21, the USD/TRY broke the horizontal barrier set at the 27-level. The latest record high of 27.6726 was registered on October 2. As of October 3, a new trench was being dug around the 27.50-level.


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