Turkey’s consumer price index (CPI) inflation officially stood at 52% y/y in August versus 62% y/y in July, the Turkish Statistical Institute (TUIK, or TurkStat) said on September 3 (chart).

TUIK’s inflation series peaked at 75.45% in May. It is now quickly falling back to the 40%s thanks to the base effect.

Putting out a headline figure of below 40% would perhaps prove too much of a stretch even for the country’s infamous statistical institute.

At 52% y/y, Turkey remained in third place in the world inflation league.

The Istanbul-based ENAG inflation research group of economists, meanwhile, calculated a Turkish inflation figure of 90% y/y for August. The ENAG figures recorded for May and July were 121% y/y and 101% y/y, respectively.

TUIK also gave an official figure of 36% y/y for producer price index (PPI) inflation in August.

Central bank tracks monthly inflation

TUIK also posted monthly official inflation of 2% for August. It released 3% m/m for July and 2% m/m for June, after releasing 3% m/m figures for the three previous months.

In the coming months, TUIK is set to deliver further outcomes in the 1-2%s for the official monthly headline indicator.

End-2024 inflation to come in at 40-42% y/y

On August 8, Turkey’s central bank kept its end-2024 official inflation "target" unchanged at 38% in its latest quarterly inflation report.

The upper boundary of the forecast range was also left unchanged at 42%.

The inflation report also reiterated that average "seasonally-adjusted" official monthly inflation will decline to 2.5% in 3Q24 and to below 1.5% in 4Q24.

As things stand, the Erdogan regime is getting ready to release an official inflation figure at around 40-42% at end-December.

If the average unadjusted official monthly inflation releases come in at 1.40%, end-2024 inflation will come in at 38%. For 42%, an average of 1.98% is required.

On November 8, the central bank will release its next inflation report and updated forecasts.

Positive real rate in September

In June 2023, following the post-election appointment of Turkey’s new economic team led by finance minister and ex-Wall Street banker Mehmet Simsek, the Erdogan regime U-turned on monetary policy and launched a tightening process that is ongoing.

The policy rate was hiked to 50% by March this year from the ultra-loose 8.5% that was in play in June last year.

In August, the monetary policy committee (MPC) of Turkey’s central bank kept its policy rate unchanged at 50% for the fifth straight month.

The next MPC meeting is scheduled for September 19. The rate-setters at this point look set to again stick with the 50% benchmark.

On October 3, TUIK will release its September inflation and the annual figure will fall below the policy rate for the first time since July 2021.

As things stand, a rate cut is expected in the fourth quarter.

Fed to cut on September 18

Looking at the global markets, no further turbulence following that of August 5 is visible. Turkey’s CDS remain below the 300-level, while the yield on the Turkish government’s 10-year eurobonds is still testing below the 7%-level.

In June, the European Central Bank (ECB) delivered a rate cut while the Federal Reserve (Fed) is expected to deliver a rate cut on September 18 at its upcoming rate-setting meeting.

USD/TRY being pushed below 34-line

Since September 2, the Erdogan administration has been aiming to push the USD/TRY rate to below the 34.00-line. The pair is currently drawing a line in the 32.90s.

Following a rebuilding of reserves, the central bank’s reserve quality is no longer negative.

The possibility of there being an insistence on keeping the USD/TRY pair flat, something that was seen prior to the appointment of the new economic management, is not visible at this point in time.

However, since end-July, the central bank has been burning through its reserves once again, albeit so far at levels that are not hurting.

With August, portfolio flows turned negative. There is now a short window ahead for renewed inflows prior to the possible shake-up in November.