Turkey’s annual inflation remains flat in October

With a better-than-expected monthly inflation rate coming in at 3.4%, Turkey's annual figure remained broadly unchanged at 61.4% in October. The data reflects continuing deterioration in price dynamics with significant pressure in services and clothing, though deceleration in food and transportation limited the monthly inflation increase. In the last inflation report of the year, the Central Bank of Turkey (CBT) raised its year-end and 2024 inflation forecasts by 7pp to 65% and by 3pp to 36% respectively, while the band of uncertainty around the forecasts widened on the back of higher geopolitical risks and uncertainties surrounding administered prices.

Core inflation (CPI-C) came in at 3.7% month-on-month, rising to 69.8% on an annual basis on the back of worsening pricing behaviour and inertia in services prices. However, the underlying trend (as measured by 3m-ma, annualised percentage change, based on seasonally adjusted series) improved not only for the core but also the headline rate in October, in line with the CBT's expectations as specified in the MPC note. Given that the CBT also pledged that the policy rate will be determined in a way that will create the monetary and financial conditions necessary for ensuring a decline in the underlying trend of inflation, we should not rule out a possibility of deceleration in the pace of hikes in the upcoming MPC.

October PPI, on the other hand, stood at 1.9% on a monthly basis, translating into 39.4% year-on-year. The decline in annual PPI from close to triple digits at the end of last year shows improvement in cost pressures, despite the increase in the TL equivalent of import prices over recent months due to commodity price developments and exchange rate increases. While the sharp drop in October also reflecting favourable base effects is a positive development, limited moderation in domestic demand so far hints that producers will likely continue to pass their cost increases to consumers.

In the breakdown, all main expenditure groups – with the exception of transportation – positively affected the headline. Among them, the housing group turned out to be the major contributor with 0.93ppt, due mostly to natural price increases along with continuing rises in rents and adjustments in water fees. This was followed by food (0.84ppt) as a result of benign prices for fresh fruits and vegetables, close to the minimum of the October increases in the current inflation series.

In the latest reading, the annual inflation of these groups reached 72%, versus the CBT’s expectations of 66.7% as outlined in the November inflation report. Clothing also stood out by lifting the headline 0.74ppt and recorded a strong 13.7% MoM, but annual inflation in this group remained relatively subdued at 39.2% YoY. On the flipside, transportation recorded a slight price decline on the back of benign gasoline and automobile prices. As a result, goods inflation went down to 51.5% YoY. Annual inflation in services – which is influenced by domestic demand and minimum wage hikes – maintained its uptrend and reached another peak at 88.6% YoY, despite a loss in momentum in comparison to the recent months.