Economy in Turkey: Annual inflation forecast of economists goes up to 62.1 percent

It is expected that inflation will increase by 3.9% on a monthly basis in October, and on an annual basis, it is expected to reach 62.1%. TÜİK (Turkish Statistical Institute) will announce the inflation rate for the month of October on Friday at 10 a.m.

Following the cumulative impact of the depreciation of the Turkish Lira and the reflection of tax increases on prices after the elections, it is expected that the Consumer Price Index (CPI) will increase by 3.9% on a monthly basis in October, with a limited increase on an annual basis to 62.1%, mainly led by the clothing and services category.

According to a Reuters survey of 15 economists, the monthly CPI forecasts range from 3.2% to 5% increase, while the annual forecasts range from 61% to 64.1%.

Reserves increase by 33.7% since the beginning of the year

After President Tayyip Erdoğan’s re-election in the presidential elections in May, there have been changes in economic management and practices. With the Central Bank of the Republic of Turkey (TCMB) no longer using its reserves to determine the level of the Turkish Lira, the currency has depreciated by 33.7% for the most part since the elections, starting from the beginning of the year.

After the elections, tax increases were implemented, including a cigarette tax and an increase in fuel prices, and corporate income tax and value-added tax were also increased due to increased costs arising from earthquakes. In addition to this, a one-time special consumption tax (SCT) was introduced, and stamp duties and fees were also raised. In July and August, as a result of these developments, the CPI started to rise again after an eight-month decline.

Both in July and August, the monthly inflation rate was close to double digits. In September, the CPI increased by 4.75% on a monthly basis, relatively slowing down, and the Central Bank (TCMB) stated that the exchange rate and tax increases had significantly affected prices.

Goldman Sachs predicts a downward trend in price pressures

Goldman Sachs mentioned in a research note that they expected a downward trend in price pressures compared to the previous quarter, with expectations of weaker domestic demand and no significant depreciation of the Turkish Lira in the last quarter. They stated:

“We expect headline inflation to rise to 62.3% due to the base effect and the decrease in successive price pressures. In October, we expect core inflation to decrease compared to the previous quarter and believe that tax hikes, wage increases, and the pass-through of the Turkish Lira’s depreciation to prices have been completed.”

Interest rates have been raised to 35%

The Central Bank of the Republic of Turkey (TCMB), which has announced that it will implement a gradual tight monetary policy and has made the reduction of inflation its primary focus again, has increased the policy interest rate from 8.5% to 35% since June under the leadership of Hafize Gaye Erkan. In its meeting last week, the TCMB conveyed the message that it was determined in its disinflation efforts.

The median inflation forecast at year-end in the Reuters survey is 69.5%, with forecasts ranging from 65% to 73.5%. In the survey conducted in September, the median year-end forecast was 68.5%.