Turkish Lira: Inflation momentum still too strong – Commerzbank

Commerzbank’s Tatha Ghose notes that June Turkish Consumer Price Index (CPI) and Producer Price Index (PPI) data were better than expected as the energy shock faded, with headline CPI slowing to 32.1% year-on-year and PPI to 28.1%. However, seasonally adjusted monthly gains imply roughly 24% underlying inflation momentum. Ghose warns this pace remains far from a credible path to single-digit inflation or the Central Bank of the Republic of Türkiye's (CBRT) 5% target, limiting scope for policy easing.

Underlying price pressures constrain CBRT options

"Turkish CPI/PPI data from last Friday broadly matched the preview we outlined: headline CPI slowed to 32.1%y/y, core eased slightly, and both implied a seasonally-adjusted 1.8%m/m increase."

"In other words, the “soft” 0.9%m/m raw print still translates into roughly 24% underlying inflation momentum, both for headline and core."

"This is a clear improvement from the Iran-war spike months, but such a rate of fresh price increase is nowhere near a credible path towards single-digit inflation, let alone CBRT’s long-term 5% target"

"The producer side gave a similar message. PPI eased to 28.1%y/y, with a 1.8%m/m rise after 2.8%m/m in May."

"So the cost channel has cooled a bit, but it is not yet offering genuine disinflation support."

"In conclusion, June’s data were better-than-expected as the energy shock retreated, but underlying inflation is still far too fast to offer meaningful relief for policymakers, or justify their signals about easing back the rate corridor."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)