Introduction

Türkiye’s annual consumer price inflation is expected to have continued a downward trend in June, according to surveys, but the monthly reading is seen remaining stubbornly high.

Annual Inflation Figures

This week’s data is expected to show that annual inflation eased to around 39.47%, down slightly from 39.59% in May, according to a median estimate in a Reuters poll of 11 economists, with forecasts ranging between 36.30% and 40.30%.

Factors Influencing Inflation

The annual reading recorded more than a 4-point drop in May after Ankara’s provision of free natural gas that month offset other price rises, while a measure of inflation that excludes energy prices rose again.

The median estimate in the Reuters poll for the monthly inflation in June was for a rise of 4.84%, with forecasts ranging between 2.50% and 5.50%, driven partly by a steep decline in the Turkish lira.

Other factors that contributed to the monthly rise was a general rise in prices across the board, including hikes to petrol, precious metals, services sector, cars and tobacco, economists said.

Inflation in Istanbul

Meanwhile, retail prices in Türkiye’s largest city, Istanbul, rose 3.46% month-over-month in June for an annual increase of 55.19%, the Istanbul Chamber of Commerce (ITO) said on Saturday.

Wholesale prices in the city, home to around a fifth of Türkiye’s population of 85 million, increased by 4.32% month-over-month in the same period for an annual rise of 64.27%, ITO said.

Measures Taken to Combat Inflation

Türkiye’s economic authorities have taken steps since President Recep Tayyip Erdoğan was reelected on May 28 to combat inflation, including changing course after two years of monetary easing.

The country’s central bank increased its benchmark policy rate by 650 basis points last Thursday, lifting its one-week repo rate to 15%. The monetary authority has also simplified some of the macroprudential measures it had implemented in a drive to boost the lira.

The decline in the lira is reflected in domestic prices, stoking inflation in the import-dependent country.

The central bank has promised more “gradual” tightening, adding that indicators indicate a rise in the underlying inflation trend.

Year-End Inflation Forecast

The median estimate in the Reuters poll for annual inflation at year-end stood at 51.5%, with the forecasts of eight economists ranging between 38.60% and 55.30%.

The inflation surged in late 2021 amid a depreciation in the Turkish lira that came after the country opted for an easing drive that saw its central bank slash its key policy rate to 8.5% from 19% in 2021. The annual consumer price index (CPI) touched a 24-year high of above 85% in October last year before easing.

Economic Team Reshuffle

Erdoğan reshuffled his economic team after reelection, bringing in Mehmet Şimşek, the respected veteran policymaker, as treasury and finance minister, and Erkan, a former Wall Street banker, as central bank governor.

In his remarks after the rate hike, Şimşek said predictable economic policies based on the market economy, a free exchange rate regime and an inflation-targeting model would enable capital inflows and stabilize the lira.

Data Announcement

The Turkish Statistical Institute (TurkStat) will announce June inflation data at 7 a.m. GMT on July 5.