TRY: Bad news again – Commerzbank

Turkish policymakers are waiting for some much-needed decline in inflation to back their claim that inflation is moderating through H2 2024. So far, however, only superficial improvement is observed. The month-on-month rate of CPI change even re-accelerated in July, and end-2024 inflation expectations deteriorated, Commerzbank’s FX Analyst Tatha Ghose notes.

Inflation expectations are elevated

“We have received further bad news in the form of elevated inflation expectations within consumer and business tendency surveys. The latest survey showed that the manufacturing sector’s 12-month forward inflation expectation stands at c.54% in August; the household sector’s 12-month forward inflation expectation stands at c.73%. These data portray inflation expectations to be stuck in a range incompatible with ‘winning the fight against inflation’.”

“All surveys are gradually easing compared with their 2022-23 peaks, but the absolute levels are very different. CBT’s survey of market participants has proved to be the most over-optimistic at all timeframes – it hardly went above 45% at its peak when actual CPI inflation was registering 70%. There is simply too much ‘mean reversion’ built into market forecasts, perhaps. Conversely, the household sector’s expectations seem stuck at a higher static range.”

“Whatever the explanation of such systematic errors may be, economic agents are still likely to behave in line with their own expectations – in this sense, the economic adjustment necessary to ‘anchor’ inflation expectations do not seem to have occurred at all. At a time when the lira is depreciating at a faster pace once again and speculation about policymakers’ fatigue is mounting, such data come as bad news indeed.”