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hiked its inflation forecast from 36% to THE CENTRAL BANK

38% for 2024. It evokes Neil Armstrong’s statement as he stepped on the moon: “That’s one small step for man, one giant leap for mankind.” The proportional equivalent of the 2-point hike is 5.5%. However, if a 4% estimate is increased to 6%, the deviation is 50%!

The bank kept the inflation forecasts for 2025 and 2026 steady at 14% and 9%, respectively.

According to Central Bank Governor Fatih Karahan, upward revisions in crude oil and import prices and higher food price expectations were the leading factors in forecast revision. The bank raised its crude oil price estimate from USD 83.6 to USD 86.4 in its second Inflation Report. The food price hike forecast rose from 34.6% to 35.5%.

Karahan said the seasonally adjusted monthly inflation hike will be 2.5% in Q3 and slightly below 1.5% in Q4.

There is a critical detail about the May inflation, which the bank remarked on in the Inflation Report launched in February, and Karahan emphasized it once again at the presentation of the second Inflation Report of the year. The end of the 25 cubic meters natural gas advantage will raise CPI by 0.72 points in May. Karahan said they estimate the annual inflation to hover around 75-76% in May, which is an optimistic forecast. Since the monthly increase is estimated at 10-15% in clothing prices and TurkStat considers the new season prices in May, clothing will raise inflation by around 0.8 points. The total effect of natural gas and clothing reaches 1.5 points.

Annual inflation of 75% depends on holding the hike in May at 3.11%, which is lower than January-April and seems impossible.

Annual inflation will rise to 76% if the May hike is 3.69%. It will increase to 77% if the May surge is 4.28%. If the rate is realized at 4.87%, annual inflation will reach 78%. Considering natural gas and clothing, a monthly rate of 3.5-4.0% seems reasonable under current conditions. It points out that the peak may hover around 76-77% in May.

Inflation is expected to be 16.24% in the remaining eight months of 2024 after the bank raised its forecast from 36% to 38% for the year. The inflation target remained unchanged at 14% for 2025. Accordingly, the monthly average will be 1.1%, and the total hike will reach 4.47% in January-April 2025.

Thus, the total inflation increase is forecasted at 21.44% for May 2024-April 2025. It is quite a low rate. However, nobody believes in this rate and finds it realizable.