Turkey Gets Little Relief as Inflation Slows Less Than Expected

Turkey’s inflation eased slightly less than expected last month, likely reinforcing the view among many economists that an interest-rate cut is off the table this year.

Inflation slowed to 48.6% annually in October from 49.4% in September, according to official data released on Monday. Economists surveyed by Bloomberg had expected a figure of 48.3%. Monthly prices, the favored measure of Turkish central bankers, eased to 2.88% from 2.97% in September.

Monthly price gains

Clothing and shoes prices contributed the most to the monthly price gains, with an increase of more than 14%. That was followed by food and non-alcoholic beverage prices, which rose 4.3% month-on-month. The central bank, citing seasonal factors, had anticipated significant increases for both groups.

Monetary authorities have expressed concern about the pace of disinflation, and have tilted to a more hawkish stance after worse-than-expected readings in September. That’s led to analysts largely pushing back on prior forecasts that Turkey would join global peers and begin a cycle of interest-rate cuts this year.

The central bank’s key rate has been at 50% since March, hurting many businesses and contributing to a slowdown in the Turkish economy. Still, the tight policy has led to the in headline inflation rate dropping from over 75% in May.

The Monetary Policy Committee’s next two meetings are on Nov. 21 and Dec. 26.

More optimistically for central bank Governor Fatih Karahan, services inflation showed a sharp improvement on a monthly basis, decelerating to 1.95% from 4.9%. Officials have said they expect that measure, which includes rent, restaurants and hotels, to continue slowing over the rest of 2024.

Seasonally-adjusted prices, another gauge that the Turkish central bankers pay attention to, will be released on Tuesday.

Turkey Hardens Tone on Rate Hold, Reducing Chance of Cut in 2024

Last week, data showed that inflation in Istanbul, Turkey’s biggest city, stood at 59.1% in annual terms in October, down only very slightly from the previous month.

Economists say a key factor in Turkey’s ability to bring down inflation quickly will be the increase in next year’s minimum wage, which will likely be announced in December. Recent inflation readings mean there’s a risk of a “higher-than expected” wage hike, Goldman Sachs Group Inc. economists, led by Kevin Daly, said in a note ahead of the release of Monday’s data.

If so, Turkey might start monetary easing even later than January, which is when Goldman expects it to happen, the economists said.

Quarterly outlook

Karahan will speak later this week when the central bank gives its quarterly outlook for inflation. Turkish officials have said it’s set to end this year around 42%, the upper range of their current forecast.

Many analysts will also focus on the bank’s price forecasts for next year. For now, the central bank is saying it sees the rate dropping to 14% by the end of 2025.

If it lowers figure or maintains it, “it might mean that the rates are going to stay higher for longer than currently expected,” said Tufan Comert, global markets strategy executive director at BBVA in London. “Higher inflation projections going forward will, on the other hand, mean that the central bank would seek a balance between growth and inflation, rather than concentrating solely on inflation.”