Experts interpret the March inflation

►INFLATION MAY DECLINE TO 42% IN MAY SERHAT GURLEYEN

The monthly price hikes, which approach the averages of the last five years, are still above the averages of the past 10 years. The general trend points out around 2.5% inertia in the seasonally adjusted series. Yet, annual headline and core inflation will continue to decline in the next two months thanks to the high base effect. We expect the annual headline inflation to fall by eight points in the next two months and hit 42% in May. Although the March data remained below our expectation, we maintain our year-end inflation forecast at 43% for 2023 due to the post-earthquake supply issues, ongoing financial suppression, and the hike in oil prices following the decision of OPEC. This forecast is based on the assumption that monetary conditions will be tightened gradually after the elections. We maintain our year-end inflation estimation at 52% in the scenario in which the current policies continue.

►DELINE TO CONTINUE FOR ANOTHER ONE-WO MONTH SAKIR TURAN

The resilient demand for some products in addition to an increase in food prices and ongoing impacts of the minimum wage hike continued. The negative inflation in the clothing group has continued for five consecutive months. Energy price developments restricted inflation in March. However, momentum indicators of core indices rose. We think that inflation will continue to decline for another one or two months with the base effect and price cuts to be valid in energy as of April. But we also consider that the inertia in forecasts may restrict the recovery with interruptions in the supply chains and the supply-demand imbalances caused by the earthquake. We evaluate the FX rate developments, and the dimension of the recovery in global inflation will determine the course of inflation in the medium term in Turkey.

►DECREASE REMAINED LIMITED IN SERVICES INFLATION NIHAN ZIYA

The annual domestic producer price index (D-PPI) has fallen by 95 points, and the annual consumer price index (CPI) has decreased by 35 points over the past five months. The decline in the services inflation remained limited compared to the goods group. The core CPI inflation continued to recover in March. Although the downward trend continues in annual inflation after the energy and FX-driven impacts have declined, the decrease, which is limited in the food and services group, is negative for inflation dynamics. The 15% electricity price cut announced for the residential group this month, will create a 0.54-point downward impact on the core inflation. The electricity and natural gas price cuts on the manufacturing side may also have an indirect downward effect. There is a base effect that may reduce inflation in April. However, this effect is low in the coming months. We estimate the year-end core CPI inflation at 45% for 2023.