The worst inflation outlook in 21 years

While price increases accelerated due to exchange rate and tax increases after the election, inflation expectations rose sharply.

In the August survey of market participants published by the Central Bank (CBRT), the consumer inflation expectation (CPI) for the next 12 months rose to 42.01 percent. Bloomberg’s Uğur Yılmaz noted that this rate reached its highest level in 21 years after February 2002.

In the July survey, the expectation for this item was 33.21%. The increase of 8.8 points in one month in the annual expectation of the CPI for the next 12 months was registered as a record in the history of the survey.

While survey respondents’ current year-end consumer inflation expectation was 43.82 percent in the previous survey period, it became 59.46 percent in this survey period. The CPI expectation after 24 months was 19.04 percent and 22.54 percent, respectively, during the same survey periods.

While participants’ USD/TL expectation by the end of 2023 was TL28.46 in the previous survey period, it became TL29.82 in this survey period.

The exchange rate expectation after 12 months was realized at TL 31.44 and TL 34.58, respectively, in the same survey periods.

THE CENTER ALSO UPDATED ITS OWN PREDICTIONS

In its inflation report announced on July 27, the CBRT raised its inflation forecast to 58 percent from 22.3 percent by the end of this year, and from 8.8 percent to 33 percent by the end of 2024.

While official inflation rose to 47.83 percent in July, the CBRT expects this rate to reach 70 percent in the second quarter of 2024, peaking and then declining.

Although inflation is rising rapidly, the CBRT policy rate is in the deep negative real interest rate zone at 17.5 percent.