Central Bank Raises Inflation Forecast to 28%
· Milliyet Ekonomi
The Central Bank of the Republic of Turkey revised its year-end inflation forecast for 2026 to 28%, citing increases in food and energy costs.
Impact of Food and Energy on Inflation Forecasts
Governor Karahan of the Central Bank of the Republic of Turkey made important macroeconomic assessments at the introduction meeting for the third Inflation Report of the year. Speaking in his capacity as CBRT Governor, Karahan shared the details of the forecasts with the following words:
"We have updated our year-end inflation forecast for 2026 upwards to 28%. We anticipate inflation to fall to 15% by the end of 2027 and 9% by the end of 2028, stabilizing at the medium-term inflation target of 5% thereafter. The 2-point update in the year-end 2026 forecast was influenced by the outlook for diesel, natural gas, and non-energy commodity prices. We have also reflected the effects of regulations related to the 'eşel mobil' system in our forecasts. Additionally, an upward revision in the food inflation assumption and administered prices played a role in the increase of our inflation forecast."
Disinflation Process and Monetary Policy
Karahan stated that the disinflation process is continuing despite losing momentum, and emphasized the importance of the tight monetary policy implemented, even though targets were exceeded. Karahan described the current picture with the following statements:
"In this regard, while containing inflation at 75% and then reducing it to 30% is a success, remaining above our targets stands as a partial failure. However, it must be said that without tight monetary policy in such an environment, we would have seen much higher levels."
Speaking about the course of the monetary stance, Karahan continued his assessment as CBRT Governor:
"We expect the decline in the main inflation trend to continue in the coming period, supported by the tight monetary stance improving expectations and pricing behavior."
Karahan also announced that a return to a one-week repo as the primary funding instrument is on the agenda.
Decline Expected in Food Prices with Strong Harvest
Addressing the dynamics of agricultural production and food markets, Karahan evaluated the market outlook following the food price increases in July. Karahan made the following statement as CBRT Governor:
"There is no lingering effect into August."
Pointing to production supply and harvest expectations in the agricultural sector, Karahan expressed the trend in food prices with the following words:
"We expect food inflation to decrease somewhat more by the end of the year."
Stating that inflation has been hovering above 30% for some time, Karahan concluded his remarks by highlighting the decisive role of the agricultural harvest:
"It is not possible to speak of a clear disinflation throughout 2026."