Central Bank lifts end-year inflation forecast to 60.4 pct

Central Bank lifts end-year inflation forecast to 60.4 pct

Central Bank lifts end-year inflation forecast to 60.4 pct

Türkiye’s Central Bank has lifted its inflation forecast for end-2022 from a previous 42.8 percent to 60.4 percent and raised the end-2023 estimate from 12.9 percent to 19.2 percent.

External supply shocks and the developments related to the foreign exchange rates appear to be the main determinants of inflation, while the impacts of demand conditions are limited, said Governor Şahap Kavcıoğlu on July 28 at the launch of the bank’s quarterly inflation report.

“Core inflation indicators show a more favorable outlook,” Kavcıoğlu added.
High-frequency indicators, such as surveys on manufacturing orders and spending with cards, suggest that domestic demand lost momentum, particularly toward the end of the second quarter, he said.
“The output gap is predicted to decline gradually in the second half of the year and demand’s contribution to inflation will further wane,” the governor added.

Kavcıoğlu also reiterated that the improvement in the current account outlook continued, noting that the current account posted surplus in two quarters in a row for the first time since 2004. Increasing the current account surplus capacity of the economy is of critical importance for permanent price stability, he added.
“With the measures taken and the normalization of the conditions, our economy will achieve a sustainable current account balance in addition to its fiscal balance.”
“The performance of the tourism industry, which is an important source of employment and revenue, has been satisfactory in the first five months of the year, the governor stressed.

Kavcıoğlu also said that the labor market is functioning well, while the manufacturing and export-oriented production structure follows a strong course.
“Accordingly, a strong financial architecture will be established on the axis of liraization, and inflation will be ensured to fall to levels consistent with our forecasts,” he said.

Central Bank projections

In the latest edition of the inflation report, released on July 28, the Central Bank said that inflation is projected to sustain the downward trend by receding to 8.8 percent by the end of 2024.

With a 70 percent probability, inflation is expected to be between 56.9 percent and 63.9 percent - with a mid-point of 60.4 percent - at end-2022, and between 14.5 percent and 23.9 percent - with a mid-point of 19.2 percent - at end-2023, and between 3.9 percent and 13.7 percent - with a mid-point of 8.8 percent - at end-2024, the report said.
Forecasts are based on an outlook entailing a weaker global economic activity, a sustained rise in global inflation, and tighter global financial conditions compared to the previous reporting period, the bank explained.

The bank cited cost pressures, uncertainties regarding financial markets and the global economic outlook, geopolitical risks as well as pricing behavior and high inflation expectations as the key risks to inflation forecasts and possible impact channels.

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