Turkey inflation tumbles to 52% as disinflation proceeds

4:24 am Tuesday, September 03rd, 2024

By Daren Butler and Nevzat Devranoglu

ISTANBUL (Reuters) -Turkey’s annual inflation tumbled a bit more than expected to 51.97% in August, data showed on Tuesday, continuing a sharp slide due to base effects and food price relief, and keeping the central bank on track for rate cuts in the months ahead.

Month-on-month, consumer price inflation (CPI) was 2.47% in August, driven by a gas price hike, but was below market expectations, according to the Turkish Statistical Institute.

In July, monthly inflation was 3.23% while the annual rate was 61.78%. Disinflation began after annual CPI touched 75% in May, the highest level since late-2022, as a more than year-long monetary tightening campaign started to bring price relief.

Annual inflation was driven by education prices, which surged 121%, and housing prices, which were up 101%. That was offset by heavily weighted food and non-alcoholic drinks, which rose 45%.

In a Reuters poll, annual inflation was forecast to fall to 52.2% in August. Month-on-month, it was seen at 2.64%. The poll forecast annual inflation of 42.95% at end-2024.

The unit price of natural gas for residential use was raised by 38% in August, the first hike in almost two years, elevating the monthly CPI figure.

The central bank has hiked interest rates by 4,150 basis points since June last year, to 50%, and vowed to tighten further in the case of a significant deterioration in inflation.

Yet given the disinflation seen in the last few months, coupled with a slowdown in economic growth, analysts expect a 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.

Rate cut timing “will depend on developments in the main inflation trend and inflation expectations’ alignment with the central bank’s scenario (particularly for 2025).”

The lira slipped nearly 3% against the dollar in August to touch new lows in recent days and the central bank last Thursday took further steps to encourage local currency holdings by adjusting required reserves.

The domestic producer price index was up 1.68% month-on-month in August for an annual rise of 35.75%, the data showed.

(Reporting by Canan SevgiliWriting by Daren Butler;Editing by Jonathan Spicer and Sharon Singleton)