Turkey June CPI accelerates but gradual downtrend through Q3 likely

According to the Turkish Statistical Institute (TurkStat), Turkey's consumer price index (CPI) increased by 0.47 percent m/m in June, slightly above the forecast, while the producer price index increased by 0.41 percent m/m. On an annual basis, the annual inflation was up at 7.64 percent compared to 6.58 percent in May, while the domestic producer price index increased 3.41 percent. Rising food prices was seen as the main reason behind the spike.

The core inflation rate, however, continued to edge lower and reached 8.7 percent y/y from 8.8 percent in May (consensus: 8.9 percent). Turkey's inflation is still lower than a quarter ago and a gradual down-trend through Q3 likely before inflation bottoms out.

Turkey's central bank may cut the overnight lending rate again at the next policy meeting on July 19, but the benchmark rate is likely to be kept steady at 7.5 percent. Still, if inflation resumes its fall, the bank will come under greater pressure to ease in H2.

"We do not expect inflation to return to erstwhile double-digit levels anytime soon; especially core inflation is likely to drift down towards 8 percent to 8.5percent and remain flat there. Such developments, while positive in one sense, will also increase pressure on CBT to cut its benchmark rate directly. We forecast USD-TRY to surpass 3.00 over the coming quarter as the prospect of much easier monetary policy becomes clear,” said Commerzbank in a report.