End-2017 Turkish inflation expectations have risen from 9.53% in May to 9.55% in June, a central bank survey showed on June 12.

Consumer prices are, meanwhile, forecast to rise by 0.14% m/m in June, down from the increase of 0.22% m/m anticipated in the May survey.

The deterioration in inflation expectations has been driven by rising consumer prices and the depreciating Turkish lira. In April, Turkey’s central bank revised up its end-year inflation expectation for 2017 to 8.5% from its previous forecast of 8%. The World Bank is forecasting a quickening of annual inflation to 9% at the end of 2017 from last year’s 8.5%.

Respondents in the central bank survey expected the USD-TRY rate to be 3.5558 by the end of June and 3.7553 at end-2017. The lira strengthened 0.51% d/d to trade at 3.5192 per dollar on June 12. The benchmark BIST-100 index rose 0.50% d/d to 99,442.

Inflation will start falling in May and will end the year at 8.5% or below, Economy Minister Nihat Zeybeci predicted in April.

As inflation and exchange rate-related risks remain high, a direct increase in the policy rate is needed, the OECD said in its June Economic Outlook forecast as it raised its 2017 CPI inflation forecast for Turkey to 10.4% from its previous forecast of 7.7% given last November.

Faced with a sharp exchange rate depreciation and rising inflationary expectations, the monetary stance has been tightened, but explicit increases in the main policy rate are warranted, the OECD also warned.

Turkey’s annual inflation rate slightly declined to 11.72% in May after hitting 11.87% in April, the highest level recorded since October 2008. The May inflation figure met expectations for a retreat from April's peak point. However, annual inflation is still rather high and political pressure on the central bank to cut policy rates amid high inflationary pressures increased following the April 16 referendum on introducing an executive presidency.

Turkey's rising food inflation trend on an annual basis continued in May, the Turkish central bank said on June 6 in its regular monthly note on price developments.

The annual increase in food prices hit 16.91% in the month versus the 2.47% seen in May 2016. Prices of unprocessed food rose significantly in the month, mainly due to red meat prices, the central bank also said.