Turkey’s inflation cools down in March due to lower demand and oil prices

Turkey’s Inflation, which rose 12.4% yoy in February, fell to 11.9% in March. (Tera Menkul )

We see the negative effects of falling oil prices and lower economic activity due to coronavirus pandemics on inflation. These two factors seem to have suppressed the upward effect that will be expected from the depreciation of TRY in March. In this context, we see an annual decline in inflation. Food prices are one of the items that displayed the highest increase on a monthly basis, while annual food inflation declined to 10.1%. We see the highest increase in healthcare services with the increasing demand effect, and the biggest decrease in the transportation side with regard to travel restrictions and falling oil prices due to virus effects.


We still see the position of inflation as an equation with multiple variables. Low demand will play an important role in our assumptions, but we also need to consider the cost impact from the increase in exchange rates. When we exclude volatile items such as food and energy, the state of core inflation more visibly reflects the increase in the exchange rate. Monthly increases in B and C indicators were realized as 0.77% and 0.76% respectively.


Despite the slowdown in inflation, Turkey’s real interest rate is still one of the world's lowest and remains in negative position ... Central Bank of Turkey, has continued to cut interest rates in an environment that global actors perform monetary easing due to coronavirus, and policy rate currently at 9.75% ... We expect the Central Bank to continue to be keen on interest rate cuts in line with the impact of lower demand and oil prices on inflation and monetary expansion measures of developed country central banks. In the current loose monetary policy path of the CBRT focused on financial stability and growth, exchange rate and risk premium may pose an upside risk on inflation as a side effect.

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