Turkish inflation slows, but services remains an issue

With slightly better-than-expected August inflation at 2.47%, the annual figure continues to fall, to 52% from 61.8% in July. The significant drop in the headline figure is attributable to the large favourable base effect (as it was 9.09% in August 2023) associated with food and transportation despite adjustments in administered prices. Cumulative inflation in the first eight months of this year, on the other hand, reached 31.8% vs the 38% Central Bank of Turkey forecast for this year.

PPI stood at 1.68% month-on-month, a drop to 35.75% YoY vs a month ago. The data imply moderating cost pressures with supportive currency developments (USD/TRY up by 15% on a year-to-date basis, despite an acceleration in August versus the previous months). Global commodity prices that have been broadly supportive this year will likely remain the key determinant of the PPI trend ahead. 

Core inflation (CPI-C) came in at 3.0% MoM, moving down to 51.6% on an annual basis, supported by the relatively slow-moving FX basket after the local elections. While cost-push pressures are easing as evidenced by the PPI data, pricing behaviour and inertia in services have been key risk factors, adversely affecting disinflation.