Turkey: A clear worsening and growing uncertainty for inflation outlook – BBVA

Data released this week in Turkey showed consumer prices increased by 3.51% in November, resulting in annual inflation of 21.31% up from 19.89%. Analysts at BBVE, expect consumer inflation to surprise on the upside in the coming months with levels likely getting close to 30% towards the end of the first quarter of 2022. 

Key Quotes: 

“Consumer prices increased by 3.51% in November, being realized above expectations (BBVA Research 3.25%, Consensus 3.0%) and resulting in an annual inflation of 21.31% up from 19.89% the month before. Our main deviation was this time due to core prices inflation, which reflected faster than expected pass-thru from cost factors.”

“Looking ahead, accelerating exchange rate pass-thru, continuing very high volatility in the currency, strengthening cost-push factors, high food inflation and growing pressures from imported inflation reinforce upside risks and uncertainty for the inflation outlook. Besides, domestic demand is accelerating on mainly consumption and inflation expectations keep significantly deteriorating. We expect consumer inflation to surprise on the upside in the coming months with levels likely getting close to 30% towards the end of 1Q22, which will be very challenging to keep the current loose stance.”

“Given the increased volatility, inflation will likely experience levels close to 30% in next months, becoming challenging to keep loose policies when the global yields are rising. The CBRT still signals to deliver a rate cut in December but then to wait in order to see the cumulative effects of the current rate cuts in the first half of 2022.”