Turkey's inflation situation continues to be a major concern, with both the Consumer Price Index (CPI) and Producer Price Index (PPI) readings showing persistently high levels. The recent depreciation of the Turkish currency has exacerbated the pro-inflationary pressures in the country. While the annual CPI growth rate is declining due to the high base effect from the previous year, the monthly pace in June remains concerning, indicating that the inflationary challenges persist.

In June, producer prices rose by 6.5% month-on-month and 40.4% year-on-year, leading to price increases that are being passed on to consumers. The significant 25% devaluation of the lira in June could lead to consumer prices rising by over 5% in July, pushing the annual inflation rate to 42.2%.

FXMAG.COM: 

What is your assessment of the CPI and PPI readings from Turkey, and do they allow the central bank to continue too loose a monetary policy? 

Inflation in Turkey remains among the highest in the world, and the recent weakening of the currency has further fuelled pro-inflationary developments. Although the annual rate of CPI growth is falling, this is the effect of last year's high base. The monthly pace (+3.92% m/m) in June suggests the inflationary drama continues. Producer price growth in June was 6.5% m/m and 40.4% y/y, forcing price increases to be passed on to end consumers. Following the 25% devaluation of the lira in June, consumer prices in Turkey for July could rise by more than 5%, bringing annual inflation to 42.2%.

Does Turkey have any chance at all of returning to its inflation target?

Monetary policy remains too loose for such monetary conditions, provoking capital outflows from the currency and further weakening its exchange rate, which no longer has the resources to support it. Nevertheless, the president largely dictates this policy, so we have not seen any big changes in recent months, despite initial hopes.