Inflation Expectations Diverge in Turkey as Households Grow More Cautious

Turkey’s latest Sectoral Inflation Expectations data for January reveals a widening gap between professional forecasters and households, highlighting the complex psychology shaping inflation expectations across the economy. Compiled by the Central Bank of the Republic of Turkey (CBRT) using inputs from the Market Participants Survey, the Economic Tendency Survey, and the Consumer Tendency Survey conducted in cooperation with TurkStat, the report brings together expectations from financial experts, manufacturing firms, and households to assess how inflation is perceived over the next 12 months.

The findings show a clear improvement in inflation expectations among professionals and the real sector, while household expectations continue to deteriorate. This divergence underscores the challenge policymakers face in anchoring consumer expectations, even as macroeconomic indicators suggest gradual disinflation.

Market Participants Signal Stronger Confidence in Disinflation

According to the January results, market participants’ 12-month-ahead annual inflation expectation declined by 1.15 percentage points, falling to 22.20%. This group, which includes economists, financial analysts, and institutional investors, tends to base forecasts on monetary policy signals, fiscal discipline, and medium-term macroeconomic projections.

The downward revision suggests that professionals increasingly believe the current policy mix—tight monetary conditions, fiscal coordination, and macroprudential measures—is beginning to take effect. Lower expectations among market participants are particularly important for financial stability, as they influence interest rate pricing, bond yields, and capital allocation decisions across the economy.

From a policy perspective, this trend supports the Central Bank’s objective of re-establishing credibility and guiding inflation expectations toward its medium-term targets.

Real Sector Expectations Ease but Remain Elevated

The real sector, represented primarily by manufacturing industry firms, also reported a notable improvement in inflation expectations. Their 12-month inflation forecast declined by 1.90 percentage points to 32.90%, marking the sharpest monthly drop among the three groups surveyed.

This decline suggests that producers may be anticipating slower cost increases, potentially driven by tighter domestic demand, stabilizing input prices, or improved expectations regarding exchange rate movements. For policymakers, easing inflation expectations in the real sector are a critical signal, as firms’ pricing behavior directly affects future inflation dynamics.

However, despite the decline, real sector expectations remain well above those of market participants, indicating that cost pressures and uncertainty are still significant for businesses operating in Turkey’s manufacturing landscape.

Household Inflation Expectations Move Higher

In contrast to the improving outlook among experts and firms, household inflation expectations worsened in January. The survey shows that households’ 12-month-ahead inflation expectation increased by 1.18 percentage points, reaching 52.08%.

This rise highlights a persistent disconnect between official disinflation efforts and how consumers perceive price developments in their daily lives. Unlike professionals, households tend to form expectations based on visible prices, such as food, rent, utilities, and transportation, which remain highly sensitive to short-term volatility.

Elevated household expectations are particularly important because they can influence wage demands, consumption behavior, and savings decisions. If consumers expect high inflation to persist, they may accelerate spending or push for higher incomes, potentially reinforcing inflationary pressures.

Cautious Optimism Among Consumers About the Inflation Path

Despite the increase in headline household inflation expectations, the survey also points to a subtle improvement in sentiment regarding the inflation trajectory. The share of households expecting inflation to decline over the next 12 months increased by 1.64 percentage points, reaching 26.17%.

This seemingly contradictory outcome suggests that, while consumers still expect high inflation, a growing share believes price pressures may gradually ease from current levels. In other words, households may be adjusting to a “lower but still high” inflation scenario rather than anticipating a rapid return to price stability.

From a behavioral standpoint, this shift is significant. Even incremental improvements in consumer sentiment can support policy transmission over time, particularly if accompanied by visible progress in price stability.

Why the Gap Between Experts and Households Matters

The divergence between professional and household inflation expectations is a recurring challenge in many high-inflation environments. Experts rely on models, forward-looking indicators, and policy guidance, while households focus on lived experiences. In Turkey’s case, this gap underscores the importance of communication, credibility, and tangible improvements in everyday prices.

Central banks closely monitor household expectations because they are often more persistent and harder to reverse. Aligning consumer perceptions with policy objectives typically requires not only monetary tightening but also consistent messaging and observable declines in frequently purchased goods.

Policy Implications Going Forward

The January sectoral inflation expectations data suggest that disinflation expectations are strengthening among professionals and producers, an encouraging signal for monetary authorities. However, the continued rise in household expectations highlights the need for sustained policy discipline and complementary structural measures.