Turkey’s consumer price inflation fell to 61.78% in July from a year earlier, slightly below expectations.
This represents a significant decrease from the previous month’s inflation rate of 71.6%, according to official data released by the Turkish Statistical Institute (TurkStat) on Monday, according to Reuters.
Economists polled by Reuters expected annual inflation to fall to 62.1% in July, and year-on-year inflation is expected to fall to 42.2% by the end of this year.
Monthly inflation trends
Monthly inflation for July stood at 3.23%, also below economists’ expectations of 3.45%. These figures reflect a slowdown in inflationary pressures, primarily due to base effects and temporary factors.
Treasury and Finance Minister Mehmet Simsek attributed the monthly rise in inflation to these temporary factors, in a statement carried by the Turkish newspaper Daily Sabah, and expected the decline in inflation to become more evident in the coming months as a result of the government’s medium-term economic program.
On a monthly basis, housing prices topped the list of increases by 8.08%, followed by beverages and tobacco by 5.84%, while clothing and footwear witnessed a decrease of 2.58%.
The Turkish central bank has raised interest rates by 4,150 basis points since June last year. Despite the latest easing, the Turkish central bank has kept borrowing costs unchanged at 50% for four months in a row, indicating a cautious approach to monetary easing.
The Central Bank of Turkey’s deputy governor, Cevdet Akcay, said that price and tax adjustments contributed about 1.5 percentage points to the monthly inflation in July. However, the central bank remains committed to monitoring inflation risks and is ready to tighten monetary policy further if necessary.
Economic forecasts
Turkish Vice President Cevdet Yilmaz said the government expects inflation to fall to its lowest level in August and gain further downward momentum in September.
He stressed the government’s commitment to enhancing economic predictability through structural reforms, balanced growth, increased employment opportunities and strict fiscal policy.
Turkey’s central bank governor, Fatih Karahan, is scheduled to present the bank’s updated inflation forecasts next Thursday.
Nicholas Farr, an economist at Capital Economics, told Bloomberg that while the sharp drop in headline inflation is encouraging, it will take some time for policymakers to be convinced enough to start easing monetary conditions. Farr said the first rate cut is expected in 2025.
Market Reactions
The domestic producer price index rose 1.94% month-on-month in July, leading to a 41.37% year-on-year increase. This, coupled with the general moderation in consumer inflation, provides some relief to the central bank’s efforts to reduce inflation.
The real appreciation of the Turkish lira and the tight monetary stance are expected to support the process of reducing inflation. However, financial consultancy Burum Çekçi Consulting noted that fiscal policy measures may provide less support than expected, indicating that the central bank’s tight monetary policy will remain important in the coming months.
