Turkish Inflation Set to Climb in April

The median estimate of 11 economists saw monthly inflation climbing to 3.1 per cent in April from 2.46 per cent in March. Forecasts ranged from 2.80 per cent to 3.60 per cent. Year-on-year, inflation is seen sliding to 38 per cent, with forecasts ranging between 37.6 per cent and 38.7 per cent.

In April, Turkey raised electricity prices by 25 per cent for residential use and 10 per cent for industrial use while natural gas prices were increased by 20 per cent for industrial use and 24.2 per cent for electricity producers.

Economists calculate that due to the high weighting of energy prices in the inflation basket the recent hike would amount to a direct impact of some 0.5 points on inflation.

Economists said unprocessed food prices like fruits and red meat prices, as well as automotive prices which are directly impacted by currency volatility, are likely to impact the April inflation rise.

In March, Turkish assets suffered, with the lira dropping as much as 12 per cent to touch 42 against the US dollar after Istanbul Mayor Ekrem Imamoglu – Erdogan’s chief political rival – jailed over graft charges pending a trial.

The currency later recovered most of those losses thanks to market stabilising steps by the central bank. It has since remained near 38, some 4.6 per cent weaker than before the imprisonment.

The central bank tightened its policy rate by 350 basis points, set the lending rate at 49 per cent and sold some $50 billion in foreign reserves in the wake of the mayor’s arrest, data shows. The moves amount to 700 basis point of policy tightening since the arrest to counter market volatility.

Before that, the central bank had begun an easing cycle and gradually cut its policy rate to 42.5 per cent as inflation fell from the level of more than 75 per cent that it reached in May 2024.

In March, month-on-month inflation rose 2.46 per cent, standing below expectations and slowed to 38.1 per cent annually.

According to the median of the poll, economists expect inflation to fall to 30.5 per cent at the end of this year. In the March poll, the end-year forecast stood at 30 per cent.

In the minutes of its monetary policy committee meeting, the central bank said leading indicators show an increase in the underlying trend of inflation for April adding that price increases were observed in durable consumption goods with high exchange rate pass-through.

Finance Minister Mehmet Simsek said that although inflation expectations have been deteriorated the government does not expect permanent damage adding that inflation is seen to remain within the central bank’s target path.

The central bank’s year-end inflation forecast range midpoint is 24 per cent and the upper band is 29 per cent.

The Turkish Statistical Institute will release April inflation data at 0700 GMT on May 5.

Source: Reuters