As the world’s top investment manager, I am closely monitoring the situation in Turkey, where policymakers are eagerly awaiting a decline in inflation to support their claims of moderating inflation through the second half of 2024. Unfortunately, the latest data shows only a superficial improvement, with the month-on-month rate of CPI change actually re-accelerating in July. According to Commerzbank’s FX Analyst Tatha Ghose, end-2024 inflation expectations have also deteriorated.
Elevated Inflation Expectations Cause Concern
Recent surveys have revealed troubling news about elevated inflation expectations among consumers and businesses in Turkey. The manufacturing sector’s 12-month forward inflation expectation is around 54% in August, while the household sector’s expectation stands at approximately 73%. These high levels suggest that the fight against inflation is far from over.
While surveys show a gradual easing compared to previous peaks, the absolute levels remain concerning. The Central Bank of Turkey’s survey of market participants has been overly optimistic, with expectations consistently below actual CPI inflation rates. On the other hand, household expectations remain stubbornly high.
Despite efforts to anchor inflation expectations, economic agents are still behaving in line with their high expectations. This poses a challenge for policymakers, especially as the lira faces renewed depreciation and concerns about their ability to address the situation grow.
Analysis and Implications
For investors and individuals in Turkey, the persistently high inflation expectations are a cause for concern. High inflation can erode purchasing power, reduce savings, and hinder economic growth. It is essential for policymakers to address these challenges effectively to stabilize the economy and restore confidence in the financial markets.
As the world’s leading financial market journalist, I will continue to monitor the situation in Turkey and provide updates on any developments that could impact investors and the broader economy. Stay tuned for more insights and analysis on this critical issue.