Turkey’s annual inflation rate fell to 51.97% in August, driven by base effects and food price relief, suggesting potential central bank rate cuts in the coming months.
Bollywood Fever: Turkey‘s annual inflation rate fell more than anticipated to 51.97% in August, according to data released on Tuesday.Â
This continued a significant downward trend, attributed to base effects and a relief in food prices, and kept the central bank on track for potential rate cuts in the near future.
Month-on-month, consumer price inflation (CPI) rose by 2.47% in August, driven in part by a gas price hike, but remained below market expectations, as reported by the Turkish Statistical Institute.
In comparison, July saw monthly inflation at 3.23% and an annual rate of 61.78%. The ongoing disinflation began after annual CPI peaked at 75% in May, marking the highest level since late 2022.
This decline followed a prolonged period of monetary tightening that has begun to ease price pressures.
Key contributors to the annual inflation rate in August included a 121% surge in education prices and a 101% rise in housing costs.
However, these increases were somewhat balanced by a 45% rise in food and non-alcoholic drink prices, which hold significant weight in the CPI calculation.
A Reuters poll had forecasted annual inflation to fall to 52.2% in August, with a month-on-month increase of 2.64%. The poll also projected annual inflation to reach 42.95% by the end of 2024.
One significant factor influencing the monthly CPI figure was a 38% increase in the unit price of natural gas for residential use in August, marking the first hike in nearly two years.
Since June of last year, the central bank has raised interest rates by 4,150 basis points to 50%, with a commitment to further tightening if inflation worsens significantly.
However, given the recent disinflationary trend and a slowdown in economic growth, analysts are predicting a potential rate cut around November or December.
“We do not anticipate any changes in the policy rate in September and believe it will be maintained at 50% for some time,” said Haluk Burumcekci, founding partner at Burumcekci Consulting. He noted that the timing of any rate cuts will depend on inflation trends and the alignment of inflation expectations with the central bank’s projections, particularly for 2025.
In August, the Turkish lira depreciated by nearly 3% against the dollar, reaching new lows. In response, the central bank took additional measures to encourage local currency holdings by adjusting required reserves.
The data also showed that the domestic producer price index (PPI) rose by 1.68% month-on-month in August, resulting in an annual increase of 35.75%.
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