Mahfi Eğilmez gives a date for inflation decline: Different from Governor Karahan

Economist and former Treasury Undersecretary Dr. Mahfi Eğilmez pointed to the summer months for a decline in inflation. Here is Eğilmez's article:

"In all the statements made, it is explained that inflation will fall rapidly in the summer months. While this is being explained, it is usually either emphasized or implied that such a development will occur as a result of the implemented program. However, the decline that is expressed to emerge in inflation will stem from the emergence of a reality we call the base effect.

To explain this situation, let me first share a table consisting of scenarios based on monthly inflation rates that will emerge between April and December, and then explain how the decline in inflation will emerge through this table.

Table: Annual Inflation Rate Forecast According to Various Scenarios (Data between December 2022 and March 2024 are taken from TUIK data. Data between April 2024 and December 2024 show forecasts according to various scenarios.)

Let's start by explaining this complex-looking table. Column number 1 shows the monthly CPI inflation rates that have occurred up to the yellow-shaded area. The yellow-shaded section reflects the assumption that inflation will be 2.5 percent each month between April and December. The yellow-shaded area in column number 2 shows the results of the scenario based on the forecast that monthly CPI inflation will be 3 percent each month. The yellow-shaded area in column number 3 displays the result of the scenario based on the assumption that monthly inflation will be 3 percent in April–May, 2.5 percent in June–July, 2 percent in August–September, and 3.5 percent in the last three months. Columns A, B, and C show where annual inflation will reach at the end of 2024 by applying the assumptions in columns 1, 2, and 3 to the CPI index. Accordingly, if inflation averages 2.5 percent monthly for the remaining 9 months of the year, we will complete 2024 with an inflation rate of 44 percent at the end of the year; if inflation averages 3 percent monthly for the remaining 9 months, it will be 50 percent at the end of the year; and if it fluctuates monthly, we will complete 2024 with an inflation rate of around 48 percent at the end of the year.

The area in this table that requires the most attention is July, August, and September of 2023 (the green area at the top). This is where the phenomenon we call the base effect comes from. The total inflation rate for those months is 23.33 percent. When this large rate is removed and replaced by, for example, a total of 10 percent, it means that inflation will show a decline of around 13 points on an annual basis. In other words, because the base is high, even if the rate of increase is high, it will not be as high, so it will appear as a decline.

There is also the green area at the bottom. Monthly inflation rates were also high in the first two months of 2024. The base effect of this will be seen in the first two months of 2025.

A decline due to the base effect is a decline that will occur even if no policy is implemented. Therefore, let us state in advance that statements attempting to link this to the implemented program when it occurs will not reflect the truth."

WHAT DID FATİH KARAHAN SAY?

Central Bank of the Republic of Turkey (TCMB) Governor Fatih Karahan had shared his inflation expectations at an information meeting held at the Central Bank Headquarters.

Karahan stated that the year-end inflation forecast for 2024 was 36 percent, the year-end forecast for 2025 was 14 percent, and the year-end forecast for 2026 was 9 percent.

News Source: 12punto