Turkey's official annual consumer inflation dropped by 9.8 pp to a nine-month low of 61.8% in July from June’s 71.6%, the Turkish Statistical Institute (TUIK, or TurkStat) said on August 6. Favourable base effects on a year-on-year comparison kicked in.

The official data also showed month-on-month inflation was 3.23% in July, following June’s 1.64%.

The official path of annual inflation as presented by TUIK.

Istanbul-based inflation research group ENAG calculated Turkey’s inflation in July at 100.9% y/y and 5.9% m/m. ENAG’s June assessment showed annual inflation at 113%.

Offering an alternative to the TUIK numbers, ENAG begs to differ.

Turkish Finance Minister Mehmet Simsek was keen to claim the headline inflation data from TUIK demonstrated that the big economic turnaround he has been working on since the re-election of President Recep Tayyip Erdogan in May last year—almost immediately after the poll Erdogan consented to a stark U-turn in favour of “orthodox” economic policy as Simsek persuaded him it was necessary to pull Turkey out of its longstanding economic crisis—was having the requisite effect. The ordinary Turk, however, is hurting.

"Annual inflation is decreasing. … The decline in inflation will be felt more in the coming period,” Simsek said after the release of data. The drop was largely in line with market expectations.

“Monthly inflation increased in July due to temporary effects,” Simsek added. 

Economist said the monthly gain in inflation was driven by administered price hikes such as for electricity and water.

In line with Simsek’s programme of economic medicine, the central bank gradually raised the benchmark interest rate to 50% from the 8.5% it stood at in June 2023. In July, it stuck with the 50% rate for a fourth consecutive month.

Responding to the July inflation data, ING said: “The downtrend in annual inflation will likely continue with another pronounced drop in August. The extent of the decline will be determined by administrative price adjustments as we saw at the beginning of this month.”

Turkey’s central bank has been guiding that a rate cut is not on the cards for now given the risk of reviving pricing pressures with a premature monetary easing.

Its most recent forecast for annual inflation is 38% at year-end, though the regulator is due to present fresh projections on August 8. 

It remains the case that it is a struggle to find Turkish households and businesses who believe the official inflation data or the credibility of the downward inflation path forecast by the central bank. The 12-month expectations of households and businesses are markedly higher than those provided by the financial markets.

Central bank deputy governor Cevdet Akcay has warned that there would be negative repercussions for unemployment and output if they stayed “unresponsive” to restrictive policy.

“To me, the necessary condition to anchor expectations is to establish central bank credibility,” Selva Demiralp, a former US Federal Reserve economist who now teaches at Istanbul-based Koc University, was quoted as saying by Bloomberg. 

“Nobody knows whether the current central bankers will be able to fulfil their promises, or whether they will be sacked abruptly at some point,” Demiralp added. “It is this suspicion that keeps the expectations unanchored based on the experience of the recent past, where five central bank governors were replaced [by Erdogan] in five years.”