Turkey: We expect to see the effect of exchange rate increases on final prices in November inflation

In November, we expect inflation to rise to 12.6% on an annual basis with a monthly increase of 1%. Although the ongoing depreciation of the TRY has stabilized recently, it will reflect on consumer prices through a lagged mechanism, which may cause continued high inflationary pressure until the end of the year.

After hitting its lowest level with 10.9% in April, inflation has generally been in an upward trend. Inflation, which reached its annual peak with 12.6% in June, will probably equalize this peak in November with the cumulative and lagging effect of exchange rates. We have seen the first significant effects of the increase in exchange rates in inflation, which reached 11.9% in October. However, the cost increase effect stemming from this exchange rate was already felt on the PPI, during this period producers had to purchase goods for production at high costs. As an inevitable consequence of this, we see its reflection on consumer prices. PPI showed a monthly increase of 3.55% in October. Therefore, although November and December are normally the months of cooling in inflation, we expect high inflation to occur due to the increase in exchange rate effect. The TRY movement stabilized somewhat in November and there is an improvement in expectations. However, the goods in stock were obtained at higher costs and therefore stocks must be depleted to eliminate the exchange rate effect.

As the Central Bank switched to a single interest rate in its last meeting and determined this rate as 15%, we are in a good position among emerging countries at the real interest rate league. Our real interest rate, which is 2.8% according to the current inflation rate, will reach 2.1% if the November inflation is realized at the levels we expect. In fact, the situation that may be brought about by additional deterioration in inflation is revealed in this way. The Central Bank may find the 15% interest rate safe according to the inflation predicted to be 12% at the end of the year. However, if the inflation outlook deteriorates further, tightening may be needed. The value and volatility of the TRY are still the main determinants of price stability and inflation expectations. The next MPC meeting is planned to be held on December 24th.

“Burada yer alan yatırım bilgi, yorum ve tavsiyeleri yatırım danışmanlığı kapsamında değildir. Yatırım danışmanlığı hizmeti, yetkili kuruluşlar tarafından kişilerin risk ve getiri tercihleri dikkate alınarak kişiye özel sunulmaktadır. Burada yer alan yorum ve tavsiyeler ise genel niteliktedir. Bu tavsiyeler mali durumunuz ile risk ve getiri tercihlerinize uygun olmayabilir. Bu nedenle, sadece burada yer alan bilgilere dayanılarak yatırım kararı verilmesi beklentilerinize uygun sonuçlar doğurmayabilir.”