The Central Bank of the Republic of Türkiye (CBRT) has updated its year-end inflation forecast. According to the new data announced by CBRT Governor Fatih Karahan, the year-end inflation forecast, previously set at 28 percent, has been raised to 29.5 percent.
1.5 PERCENTAGE POINT INCREASE IN INFLATION FORECAST
According to the updated forecast by the CBRT, inflation is expected to reach 29.5 percent by the end of the year. The rate, which was announced as 28 percent in the previous forecast, has increased by 1.5 percentage points with this latest update.
CBRT Governor Karahan stated, "We have revised our 2026 year-end inflation forecast upward to 29.5 percent. We project that after declining to our intermediate targets of 21 percent by the end of 2027, 13.5 percent by the end of 2028, and 9 percent by the end of 2029, inflation will stabilize at the medium-term inflation target of 5 percent."
Highlights from Central Bank Governor Karahan's presentation are as follows:
Recent data indicate that the improvement in the underlying trend of inflation is becoming more pronounced. We find the slowdown in items within services inflation that previously exhibited high inertia to be significant.
Supply-side shocks caused by geopolitical developments are limiting the decline in headline inflation. The continuation of this situation keeps upward risks to the inflation outlook alive and necessitates a cautious stance.
HIGH ENERGY PRICES CONTINUE TO PRESSURE GLOBAL INFLATION
The impact of the war on the global growth outlook has been relatively limited outside the war zone. High energy prices continue to affect global inflation and inflation expectations.
Long-term bond yields in developed countries remain volatile and at high levels.
WEAK TREND IN DOMESTIC DEMAND CONTINUES, GROWTH IS SLOWING
Growth slowed in the second quarter, led by domestic demand. While service production increased in the third quarter, industrial production declined. The labor market is less tight than the headline unemployment rate implies.
Indicators confirm the weak trend in domestic demand. Data regarding demand indicators as a whole show that demand conditions are at a disinflationary level.
CURRENT ACCOUNT DEFICIT REMAINS FLAT AS A RATIO TO NATIONAL INCOME
Energy imports continue to trend upward due to the impact of geopolitical developments. Imports excluding gold and energy are trending near flat.
Despite geopolitical developments, the current account deficit remains flat as a ratio to national income.
ENERGY PRICES HAVE SLOWED THE DISINFLATION PROCESS
Energy prices came to the fore in the course of inflation in 2026. The disinflation process slowed due to supply-side pressures. The effects of supply shocks on the inflation outlook are being closely monitored.
Although food inflation has declined with the improvement in supply conditions, it remains volatile. While the slowdown in services inflation continued throughout the year, core goods inflation maintains its low trend. The weakening in demand conditions also supports this outlook.
The downward trend in rent inflation is becoming more pronounced.
UNDERLYING TREND IN INFLATION HAS BEGUN TO DECLINE
The underlying trend, which rose in the March-June period due to the impact of the war, began to decline as of July. The trend inflation indicator, which reflects longer-term trends, also confirms the improvement in the underlying trend.
Inflation expectations require the maintenance of a cautious stance.
OUTFLOWS FROM FUNDS HAVE LARGELY SHIFTED TO DEPOSITS
Taking into account recent developments in financial markets, we have actively used our liquidity tools and macroprudential framework.
The decrease in funding costs has largely been reflected in deposit and loan interest rates. The preference of domestic residents for the Turkish Lira remains strong.
Following developments in the fund market, outflows from funds have largely shifted to deposits.
OIL PRICE ASSUMPTIONS UPDATED UPWARD
While geopolitical developments keep risks to external demand alive, global growth has been more resilient than expectations in the early period of the war. In this context, we have maintained our external demand assumptions for both years.
The weakening of expectations regarding the normalization of energy shipments through the Strait of Hormuz and the increase in regional tensions have affected oil prices upward. Taking these developments into account, we have updated our oil price assumptions upward for 2026 and 2027.
UPWARD REVISION IN INFLATION FORECASTS
Under this outlook, we have revised our 2026 year-end inflation forecast upward to 29.5 percent. We project that after declining to our intermediate targets of 21 percent by the end of 2027, 13.5 percent by the end of 2028, and 9 percent by the end of 2029, inflation will stabilize at the medium-term inflation target of 5 percent.
GEOPOLITICAL DEVELOPMENTS CONTINUE TO BE A RISK FACTOR
Geopolitical developments continue to be a leading risk factor in terms of additional increases in oil prices and the persistence of high price levels.
The continuation of increases in energy and other commodity prices for a long time and the frequency of cost shocks carry the risk of slowing the disinflation process. We are monitoring the secondary effects of these shocks on inflation expectations and firms' pricing behaviors.
DISINFLATION CONTINUES AT A SLOWER PACE
While forming our monetary policy stance, we will continue to evaluate the direction of risks and their possible effects on inflation expectations with a holistic approach. We will maintain our tight monetary policy stance until price stability is achieved.
The disinflation process continues, albeit with a loss of momentum.
News Source: 12punto
