The Central Bank listed inflation risks in 8 items

After the Central Bank (CBRT) announced today the first inflation report for 2023, a written statement was issued regarding the fundamental risks on the bank’s inflation forecasts.

The CBRT’s 2023 year-end consumer inflation forecast held steady at 22.3 percent, while its 2024 year-end consumer inflation forecast held steady at 8.8 percent.

Referring to the fact that the drought is keeping upside risks to food prices and inflation alive, the statement said: “On the other hand, China’s opening-up policy and geopolitical developments pose an upside risk to food prices. of raw materials”.

Other risks that constitute the main inflation risk are listed below:

3 ELEMENTS THAT SUPPORT RISKS IN THE CURRENT BALANCE SHEET

* “The effects of volatility and tightening financial conditions, geopolitical risks and continued uncertainty about the pandemic increase downside risks to the global growth outlook for 2023. This outlook poses a downside risk to the inflation through import prices and the demand channel.

* The faster-than-expected fall in external demand and the possibility of an earlier strengthening of domestic demand pose an upside risk to inflation through the current account balance channel.

* However, there are three factors that potentially balance the risks on the checking account balance.

DEEP REDUCTION OF GRAIN, ENERGY AND DEMAND

* In the first place, the role that our country can play in the regional distribution of energy, such as in the supply of grains, and the increase in the participation of internal energy resources; Second, potential energy-based production losses in Europe can be substituted for in Turkey, as has been the case for a while, due to the supportive nature of the policy mix for continuity of supply.

The third factor is that a deeper than expected slowdown in global demand has favorable effects on the current account balance through domestic demand and world commodity prices.

* The continued slowdown in economic activity poses a downside risk to inflation.

However, the evolution of the participation of sustainable components in the composition of growth will be closely monitored. There will be a strong correlation between the effectiveness of targeted credit policies and the disinflation process.

REASONS TO LEAVE THE PRESSURE ON GLOBAL INFLATION

* Recently, some improvements in supply restrictions and transport costs and the moderate course of raw material prices eased the pressure on global inflation. Despite this, the possibility that basic indicators will improve more slowly than expected continues to put pressure on financial conditions.

* In the period of this Report, a partial recovery in risk appetite was observed together with a relative improvement in global financial conditions. Turkey’s risk premium has also decreased significantly. This perspective reduces pressures on the exchange rate and has a downward impact on the forecasts.

INCREASES AFTER SALARY INCREASES

In the coming period, the possibility of differentiation of economic conditions and problems among developed economies has increased. Therefore, emerging political uncertainties may create additional risks to global economic activity and financial conditions. All possible scenarios are closely followed.

* Price increases beyond what is implied by upward adjustments in the general level of wages represent a risk to the general behavior of prices. It is essential that the decline in the underlying inflation trend and inflation expectations are consistent with the forecast assumptions. The coordination and complementarity of monetary and fiscal policies will have a significant impact on inflation in 2023.