(Bloomberg) -- The Turkish central bank’s favored inflation yardstick showed a surprise acceleration last month, prompting some analysts to push back their expectations for an interest-rate cut anticipated in the fourth quarter.
Monthly inflation edged up to 2.97% from 2.47% in August, state statistics office TurkStat said on Thursday. The print was higher than every forecast in a Bloomberg survey of economists.
Annual inflation slowed in September but to a level higher than expected, bringing it to 49.4% versus 52% the previous month. That was more than a full percentage point above the median estimate in another poll, in which the highest prediction was 48.7%.
The worse-than-expected readings may delay the timing of what would be Turkey’s first rate cut since early 2023, according to Hande Sekerci, economist and manager at Is Portfoy’s research department .“We don’t think the central bank should start cutting rates in November,” she said, adding that easing could begin in 2025 after a more sustained improvement in inflation.
A longer wait will test an economy that’s already slowing and suffering from a lack of strong fiscal support. The central bank has kept its key rate on hold for the last six months, though softened its stance in September.
The Turkish lira reversed losses against the dollar after the data release and was trading 0.1% stronger as of 11:54 a.m. Istanbul time.
Education prices rose 14.2% on a monthly basis and were the main contributor to the surprise uptick. In the minutes of its last meeting in September, the Monetary Policy Committee drew attention to the high services inflation stemming from university tuition fees and an increase in school bus fares.
Education — along with categories including housing, clothing, restaurant and hotel and food prices — all came in higher than projected, according to Sekerci. She said services inflation was sticky and that the “resilience of deteriorated pricing behavior” was difficult to break.
What Bloomberg Economics Says...
“If elevated inflation persists in October, then policymakers may refrain from staring an easing cycle in November — our long-run base case. The central bank’s projections point to 1.5% average monthly inflation in the seasonally adjusted series for the final quarter of the year. Our baseline forecast has a 2.3% average as the more likely scenario.”
— Selva Bahar Baziki, economist. Click here to read more.
Even so, Turkey reached a milestone last month as annual inflation dropped below the central bank’s 50% key interest rate, marking the first time in three years that official borrowing costs are above zero when adjusted for prices.
Household and corporate price expectations — another key indicator for policymakers — have remained far more elevated than projected by the central bank, which sees them as a risk to disinflation.
Governor Fatih Karahan will address lawmakers on inflation and monetary policy later on Thursday. Turkey’s statistics service will publish seasonally-adjusted inflation data for the first time on Oct. 4.
“The central bank’s policy rate is now in positive territory when adjusted for inflation, but the bad news is that even if the next three months’ average inflation comes at 2%, year-end inflation will be 44%,” said Tufan Comert, an emerging-markets strategist at BBVA in London. “In this case, the market is very likely to postpone the expectations for rate cuts in November to 2025.”
--With assistance from Joel Rinneby, Inci Ozbek and Asli Kandemir.
(Updates throughout with chart, comments, background.)
©2024 Bloomberg L.P.