(Bloomberg) — Turkey’s annual inflation slowed less-than-expected by economists and the central bank’s preferred gauge surged last month, potentially delaying discussions on interest-rate cuts anticipated in the fourth quarter.
Annual inflation slowed to 49.4% last month from 52% in August, state statistics office TurkStat announced on Thursday. The median forecast in a Bloomberg survey was for an inflation rate of 48.3%, with the highest forecast at 48.7%.
Monthly inflation, the central bank’s favored gauge was 2.97% compared to 2.47% the previous month, and higher than all forecasts in a separate poll. Education prices rose 14.2% on a monthly basis and was the main contributor to the unexpected print. 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.
Hande Sekerci, economist and manager at Is Portfoy’s research department, said education as well as housing, clothing, restaurant and hotel and food prices, were all higher than their projections. She said services inflation was sticky and that the “resilience of deteriorated pricing behavior” was difficult to break.
The trajectory of monthly inflation has gained more prominence for investors who are increasingly expecting the central bank to start cutting borrowing costs in the fourth quarter. Goldman Sachs Group Inc. was among those penciling in a rate cut in November ahead of Thursday’s inflation print. The Monetary Policy Committee has kept its benchmark on hold for the last six months but softened its stance in September.
“We don’t think the central bank should start cutting rates in November,” Sekerci said. “In fact, the easing could be delayed to 2025 after seeing permanent improvement in inflation.”
The Turkish lira reversed losses against the US dollar after the data release and was trading little changed at 34.2051 at 10:13 a.m. Istanbul time.
Still, Turkey reached a milestone 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.
“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% while year-end inflation will be 44%,” said Tufan Comert, an emerging-markets strategist at BBVA in London. “In this case, market is very likely to postpone the expectations for rate cuts in November to 2025.”
Governor Fatih Karahan will address lawmakers at the Turkish parliament later Thursday.
–With assistance from Joel Rinneby, Inci Ozbek and Asli Kandemir.
(Updates starting in first paragraph with context, quotes, data.)
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