Turkey: We expect the upward pressure to continue in the first inflation data of the year

January inflation data, which stands out as the most important macroeconomic announcement of the week, is coming tomorrow.

January inflation data, which stands out as the most important macroeconomic announcement of the week, is coming tomorrow. In January, we expect inflation to reach 14.65% on an annual basis with a monthly increase of 1.4%. Even though the TRY has stabilized recently and the exchange rate declined, we expect past exchange rate increases to reflect on consumer prices due to ongoing cost burdens. We think that the transition effect of exchange rate increases, global commodity and food prices, and the price hikes introduced in the first months of the year will continue to increase the inflation risks.


Inflation accelerated in the last 3 months of the year due to increased import costs and oil prices, reaching 14.6% in December. In this period, the high input costs that producers had to endure caused a rapid rise on the PPI side, opening the PPI-CPI shear. The PPI, which was at the level of 25.15% as of December, is far above the CPI rate, and this indicates that we will see high CPI increases for the coming months. We will see the effects of the recent fall in exchange rates within the framework of a delayed mechanism of up to 3 months. We expect inflation to be at the peak of the year in April, after the second half of the year, the decrease in exchange rates will reduce the price pressure, the improving seasonal conditions will alleviate the pressure on food inflation and will weigh on the downward trend within the framework of the favorable base effect.


The Central Bank did not revise its year-end headline inflation expectation in the first Inflation Report of the year and kept it at 9.4%. When compared to the expectations of the market for the end of the year; According to the weighted expectations in the 11-12% band, the official inflation expectation of the Central Bank continues to remain at an optimistic point. However, the reference that the medium-term target is to address 5% to 2023 and that the monetary policy will remain tight enough to ensure disinflation in this process is quite important. This means that interest rates will continue to stay above inflation a certain amount. We consider it as a monetary policy reference that alleviates concerns about entering a risky easing cycle that is early and ahead of the market.


At the same time, despite the former administration's reference to the expected inflation in real interest rates, in our current policy, we currently provide real interest rates by positioning the policy rate over the current inflation. A prudent approach in terms of both deviations from expectations and indicating the current situation; Despite the negative effects of this high interest rate limiting the demand in the macroeconomic side, the TRY stability remains in a crucial position in the short term in terms of centering the inflation. For inflation in a certain period, we will probably watch over 15% in 1Q21 and at the beginning of 2Q21. Within the framework of the risks to the peak and disinflation process (in terms of timing, process and destination), the Central Bank will keep the interest rates at the current levels at least before the second half. Depending on the inflation outlook, there may be another interest rate hike in terms of real interest standardization. Interest rate cuts, which we do not expect to be realized before the second half, will be realized as inflation allows and in a way to keep the monetary policy at a certain tightness.

Kaynak:Tera Yatırım
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