Services remain a key risk to disinflation in Turkey

Following the release of Istanbul’s figure, which was quite high at around 4%, TurkStat’s September inflation stood at 3% – a turnout markedly higher than the market consensus and our call of 2.2%. However, the annual figure has maintained its declining trend and fell to 49.4% from 52% a month ago, given the continued favourable base effect (4.75% in September 2023), while the pace of decline lost momentum with no respite in services inflation. Cumulative inflation in the first nine months of this year reached 35.9% vs the Central Bank of Turkey’s 38% forecast for the whole year (with a forecast range of 34%-42%).

PPI stood at 1.4% month-on-month, showing a drop to 33.1% year-on-year vs a month ago. The data implies a continuing moderation in cost pressures with supportive currency developments (USD/TRY up by 16% on a year-to-date basis). Global commodity prices – particularly oil prices given the current geopolitical backdrop – will likely remain the key determinant of the PPI trend moving forward. 

Core inflation (CPI-C) came in at 3.6% MoM, moving down to 49.1% on an annual basis, supported by the relatively slow-moving FX basket and supportive base from last year. While cost-push pressures are moderating (as evidenced by the PPI data), pricing behaviour and inertia in services have remained key risk factors, adversely affecting disinflation.