Türkiye’s inflation slows at sharpest pace since 2022
A Turkish vendor sits in front of his shop. (Photo by Francisco Seco via AP)
Türkiye’s headline inflation saw the sharpest drop in nearly two years in July, primarily due to base effects.
Data on Monday shows headline inflation slipping to 61.8% in July from 71.6% the previous month, against the median forecast of 62% from economists surveyed by Bloomberg.
Monthly price growth, the central bank’s preferred gauge, came in at 3.23% after a 1.6% gain in June, surpassing analysts’ estimates.
Central Bank stance and economic outlook
The Turkish Central Bank recently forecasted annual inflation at 38% by year-end, with new projections to be presented on August 8. The benchmark interest rate remained at 50% for the fourth consecutive month in July.
Despite the slowdown in domestic demand, the Central Bank highlighted persistent price pressures in the services sector.
Turkish Central Bank Deputy Governor Cevdet Akcay warned of potential negative repercussions for unemployment and output if households and businesses remain unresponsive to restrictive policy.
Selva Demiralp, a former U.S. Federal Reserve economist now at Koc University, stressed the importance of establishing central bank credibility to anchor expectations, noting the frequent changes in central bank leadership in recent years.
Political influence and future policy
New management at the Turkish Central Bank has gained investor respect, there are lingering fears of potential interference. Turkish President Recep Tayyip Erdogan has not commented on rates since the election, except for a cryptic message in June predicting further inflation slowdown in the final quarter of this year with steps taken on rates.
As price pressures ease and restrictive monetary policy drags down economic activity, the central bank may face pressure to consider cutting rates.
Policymakers have spoken against easing borrowing costs too soon, but analysts from Goldman Sachs and JPMorgan Chase & Co. have suggested that a rate cut could be on the agenda as early as September or October.
Demiralp cautioned that a rate cut at this juncture would further deteriorate inflation expectations.
