Introduction

The Central Bank of the Republic of Türkiye (CBRT) Thursday revised its year-end inflation forecast upward for 2023, 2024, and 2025.

Inflation Projection for 2021

The annual consumer inflation is projected to hit 58% this year, revised 35.7 points up from the previous forecast, Governor Hafize Gaye Erkan told a meeting held to release the bank’s third quarterly inflation report this year.

Revisions for 2024 and 2025

The end-2024 forecast was raised to 33% from the previous projection of 8.8%, and the end-2025 forecast to 15% from 5%, Erkan noted during her inaugural appearance in front of the public.

Reasons for the Revisions

The upward revisions were because of Turkish lira-denominated import prices, output gap, food prices, administered prices and unit labor cost, and forecast deviation and change in forecasting approach.

Turkish Lira-Denominated Import Prices

“Compared to the previous reporting period, developments in lira-denominated import prices pushed our year-end inflation forecasts for 2023 and 2024 up by 7.5 and 8.3 points, respectively. This was mainly driven by exchange rate developments,” Erkan explained.

Impact of Food Prices

Food prices added 8.5 percentage points for 2023 and 6.0 percentage points for 2024 to the bank’s forecasts, she stressed.

Other Economic Policies

“Changes made to other economic policies, such as transfers to households, taxes, wages, and administered price adjustments, raised the end-2023 inflation forecast by 7.5 points and end-2024 inflation forecast up by 3.6 points.”

Effect of Domestic Demand

The stronger-than-expected domestic demand pushed the year-end inflation forecasts up by 1.3 points for 2023 and by 0.4 points for 2024, Erkan noted.

Forecast Deviations and Change in Forecasting Approach

“Lastly, the effects of forecast deviations and the change in forecasting approach added 10.9 and 5.9 points to our year-end forecasts for 2023 and 2024, respectively,” she said.

Central Bank’s Approach

While gradually raising the policy rate, the bank is committed to boosting the functionality of market mechanisms through the simplification process to enable market rates to become more aligned with inflation expectations, the governor said.

Erkan underlined the bank will continue to take stabilizing steps that target inflation through selective credit tightening and aims to ensure stable development in the Turkish lira liquidity without generating excessiveness in exchange rates and domestic demand.

Conclusion

“The Central Bank will make decisions based entirely on data and in complete coordination in line with the principles of confidence, stability, and transparency,” she said.