Commerzbank’s Tatha Ghose notes Turkey’s July Consumer Price Index (CPI) slowdown to 31.7% year-on-year masks still-strong underlying price momentum, with smoothed headline and core inflation above 2% month-on-month. He highlights skepticism over Istanbul CPI revisions, continued reliance on FX conversion limits and support schemes, and concludes that July data and policy changes offer no clear relief for the Turkish Lira.
High CPI and soft controls persist
“Turkey’s latest CPI data showed headline inflation slowing to 31.7%y/y in July from 32.1%y/y in June, with prices up by 1.78%m/m. Core measures also appeared to move in a benign direction in year-on-year terms. But these figures are misleading.”
“Year-on-year inflation rates are still benefiting from base-effects, while the monthly data do not show any decisive improvement in underlying inflation momentum. It is true that the seasonally-adjusted month-on-month reading for July was softer than we had feared – but, after exponential smoothing, both headline and core CPI are still averaging faster than 2%m/m.”
“The Istanbul data cross-check adds another complication: the erstwhile Istanbul CPI (base: 2015) is reporting slight acceleration, with inflation running closer to 40%y/y, whereas the newly introduced (base: 2023) series reports 5%-pts slower inflation at 35% instead.”
“When it comes to Turkey, such data revisions in the “convenient direction” are viewed somewhat skeptically by the FX market, given the longstanding debate around the reliability of inflation data.”
“CBRT also overhauled its FX conversion scheme. Firms will now face conversion limits linked to value added, profitability and labour costs, while the 3% conversion support and 35% export proceeds surrender requirement have been extended until January 2027. This preserves administrative support for reserves, but it is still an ad hoc or “soft capital control” framework.”
“In short, the July CPI data and the revised FX conversion scheme do not constitute discernible good news for the lira.”
(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)
