Turkey: Price increases in products with high basket share

The latest rate cuts by the Central Bank will have an impact on inflation to a large extent and will continue its broad-based spread. On the other hand, annual rates of inflation, which is expected to peak in the September-October period, will decrease due to the base effect as excessive increases in the concurrent previous year periods will be excluded from the calculations. We expect this decrease to become visible in the first few months of 2023, starting from December. However, since almost none of the main products that make up the inflation basket have become cheaper and probably will not, this situation should be read as a slowdown in price increases and it should be kept in mind that the gap between incomes and prices will remain open.

In September, when we will see the direct effects of the recent natural gas and electricity price hikes, we expect inflation to rise to 84.8% on an annual basis, with a periodic 3.8% increase. Although we expect annual inflation to peak in September, we think we will see annual rates close to the annual peak in October and November. The fact that the recent rate cuts of the central bank reflect the policy perspective on inflation, which is probably not helpful, causes us to be a bit pessimistic in our year-end and future projections.

According to the available data, the share of the consumer basket with annual inflation over 40% in August was 87.8%. Food and fuel costs, on the other hand, have a total weight of 42.1% in the inflation basket over food and non-alcoholic beverages and transportation items, and among these two items, the annual rate of increase in food is 90.3% and in transportation 116.9%. Since December 2021, no decrease has been observed in the prices of many basket products. At the beginning of September, we saw a very serious increase in electricity and natural gas prices. Electricity due to high natural gas prices; At the same time, food prices may remain high due to impacts such as fertilizers and imported inputs.

We see and evaluate inflation as broad-based and consider it to be the most important risk for it to become permanent. Price increases will likely continue to occur on a periodic basis, with the impact of both global supply uncertainties and local economic/monetary policies. Of course, in such an environment, the most important problem is the uncertainty about the exchange rate levels, and the fact that it is very difficult to provide a return that will protect TL-based savings against inflation after the interest rate cuts by the Central Bank constitutes the main lines of this uncertainty. Financial conditions tightened by the Fed and other developed/developing country central banks that followed it cause Turkey to lag far behind in comparative returns.

If we look from the point of view of the CBRT; Despite the high inflation, the Central Bank reduced the interest rates by 200 basis points in its last two meetings. President Mr. Recep Tayyip Erdogan is demanding a larger cut in rates by the end of the year, and he believes this will lower prices. As growth-oriented policies are implemented and this perspective is maintained in the near term, we can see trends towards achieving official targets. This leaves the door open to the possibility of lowering interest rates in the upcoming meetings of the Central Bank.

Kaynak: Tera Yatırım-Enver Erkan
Hibya Haber Ajansı