Economy in Turkey: Forecast for March Inflation and What to Expect next
March inflation may not initially seem very high, but there are concerns and uncertainties about what comes after. The thoughts suggesting that inflation might be low in March are based on various factors, but the key question remains how inflation will evolve in the following months.
Why Could Inflation Be Low in March?
There are several reasons why March inflation could be relatively low. Especially during Ramadan, shopping habits and price increases tend to rise, but these increases are generally expected. Ramadan is often associated with higher prices, which is seen as a natural result. However, these price hikes are more closely linked to opportunism; that is, businesses raise prices during Ramadan, taking advantage of the occasion.
It is important to remember that price indices are not only made up of food prices; other key items also play a role, one of which is fuel.
The Role of Fuel Prices
Changes in fuel prices play a significant role in inflation calculations. Although the prices of gasoline and diesel have risen in March, their average price for the month remains below February’s average. This could lead to lower inflation in March because inflation is calculated based on the average prices for the month. According to current data, the price of gasoline has decreased by 2.2% compared to February, while diesel prices have dropped by 1.7%. LPG prices, on the other hand, have increased by 0.9%. Given that fuel has a weight of 3.33% in the Consumer Price Index (CPI), lower fuel prices could contribute to reducing overall price increases in March.
However, it is important to note that the indirect effects of fuel prices are even more significant. When fuel prices decrease, it is not common for other prices to decrease in parallel. Therefore, the reduction in fuel prices will not necessarily have a positive effect on the prices of other goods.
The Impact of Exchange Rates
Exchange rates also play a crucial role. As of the first few days of March, there has been about a 4% increase in the basket exchange rate of the dollar and euro compared to the previous month. This is close to the highest increase recorded in March of last year. The rise in exchange rates will directly affect fuel prices. If the exchange rate hadn’t risen due to the political tensions experienced last week, the fuel price hikes that occurred this week might not have happened.
March Inflation Estimate
March inflation is expected to be somewhat higher due to the effects of Ramadan, with negative impacts from the exchange rate and fuel price increases. However, taking into account the positive effect of the reduction in fuel prices, the inflation rate for March is expected to be between 2.5% and 3.0%.
What Happens in the Following Months?
If inflation stays at these levels in March, it might create a temporary sense of relief. However, the trajectory of inflation in the following months remains a bigger question mark. The relatively low inflation rate in March could be a short-term improvement. Economic uncertainties, exchange rate fluctuations, and other cost increases could cause inflation to rise to higher levels in the coming months.
SOURCE: EKONOMIM.COM Original Article by Alaattin Aktaş
Summarized / edited and translated by BTT
