Turkey reports 59% y/y official inflation rate for August

Turkey reports 59% y/y official inflation rate for August
*ENAG is an Istanbul-based inflation research group of economists. / bne IntelliNews
By Akin Nazli in Belgrade September 4, 2023

Turkey’s official consumer price index (CPIinflation stood at 59% y/y in August versus 48% y/y in July, the Turkish Statistical Institute (TUIK, or TurkStat) said on September 5 (chart).

At 59%, Turkey moved up to seventh place in the world inflation league.

The Istanbul-based ENAG inflation research group of economists, meanwhile, released an inflation figure of 128% y/y for August. The ENAG figure calculated for May was 123% y/y.

TUIK also gave an official figure of 49% y/y for producer price index (PPI) inflation in June.

Following the national elections held in May, another wave of currency depreciation coupled with widespread tax hikes dynamited pricing behaviour in the country once again.

In June, following the appointment of Turkey’s post-election new economic team, the central bank's monetary policy committee (MPC) launched the ongoing tightening process, taking the policy rate to 15% from 8.50% with a 650bp hike. In July, it delivered 250bp. Both moves undershot market hopes and predictions.

On August 24, the MPC announced a policy rate hike of 750 bp, far larger than expected by the market, taking the benchmark to 25%. The market expectation was for 250bp. The latest move was significantly more to the global finance industry’s taste.

In its statement accompanying the rate increase, the MPC said that year-end inflation will be close to the upper limit of the forecast range provided in the central bank’s inflation report.

In July, the central bank hiked its forecast for end-2023 official inflation to 58% from the 22% given in the May inflation report. Also, the upper boundary was moved up to 62% from 27%.

Moreover, the central bank said it anticipated that official inflation would peak at just below the 70%-level in May 2024.

On November 2, the central bank will release its next inflation report and updated inflation forecasts.

The next MPC meeting is scheduled for September 21. As things stand, whether or not the authority will slow the tightening is unknown. The key question is whether it will have authorisation from Turkey’s president, Recep Tayyip Erdogan, to move forward to a 30% benchmark.