ANALYSIS: April 2025 CPI: Some Deterioration, But Not Drastic

In April, the Consumer Price Index (CPI) inflation came in at 3.0% month-on-month (March: 2.5%, February: 2.3%, January: 5.0%), falling between the market consensus of 3.1% and İş Yatırım’s estimate of 2.8%. The annual headline inflation decreased by 0.2 percentage points to 37.9%. Considering the electricity price hike, currency shock, and correction in clothing prices, the data isn’t terrible. However, there is a notable deterioration compared to the previous two months, wrote Is Invest economy team.

The April CPI data reflected anticipated or directly observed developments such as high price increases in automobiles due to the currency shock, a rise in fresh fruit prices, and the public sector’s electricity price increase. The seasonal transition correction in clothing prices was stronger than our expectations. On the other hand, we observe a limited impact of the currency shock on the white goods and electronics groups, which we can attribute to relatively weak demand.

Seasonally adjusted CPI data will be released on Tuesday, May 6th at 4:00 PM local time. Until the official TurkStat (TÜİK) data is published, our own methods (X13, TRAMO/SEATS, and TurkStat’s historical adjustment coefficients) estimate the seasonally adjusted monthly headline inflation to be 2.9% (March: 2.6%, February: 2.3%, January: 3.4%), close to the raw data and showing a 0.3 percentage point increase compared to the previous month.

We define the median of the monthly inflation rates of the 143 basic items in the inflation basket as “median inflation.” This value provides a good indication of the underlying trend as it is not affected by outliers and basket weights. According to the April CPI data, the median inflation rises to 2.2% in raw data and an estimated 2.1% in seasonally adjusted terms (March: 1.8%, February: 1.8%, January: 2.2%).

Core inflation data indicates a sharper deterioration compared to the headline and median figures. The core B index, which excludes unprocessed food, energy, alcoholic beverages, tobacco products, and gold prices, stood at 3.1% month-on-month. The core C index, which excludes all food, was at 3.3% month-on-month. We calculate the seasonally adjusted core B (March: 1.9%, February: 2.7%, January: 3.8%) and core C indices (March: 2.2%, February: 2.2%, January: 3.6%) to be at 2.7% monthly.

We had observed a significant improvement in the long-standing sticky and high services inflation in the March data. Less sensitive to exchange rate fluctuations, services inflation in April was 3.0% in raw data. Our estimated seasonal adjustment shows a very limited deterioration to 3.3% month-on-month (March: 3.0%, February: 3.5%, January: 5.0%). While rental inflation decreased to 3.2% in raw data (March: 3.4%, February: 5.2%, January: 5.2%), our estimated seasonally adjusted figure of 4.2% (March: 4.1%, February: 5.3%, January: 5.9%) remained largely unchanged. We expect the normalization in services inflation to continue in the coming months as the economy slows down.

To create a summary indicator free from outliers, volatility, and seasonality regarding the general trend of inflation, we take the average of 5 seasonally adjusted special scope indicators (CPI, core B and C indices, median, unweighted trimmed mean CPI). For April, we find this estimated underlying trend to be at 2.6% month-on-month (March: 2.1%, February: 2.3%, January: 3.0%). The 3-month moving average of this underlying trend decreases to 2.3% (March: 2.5%, February: 2.5%, January: 2.5%) as the high January figure rolls out.

When is the rate cut?

Under normal circumstances, comparing the monthly policy rate of 3.8% (3.9% if compounded weekly) with the 3-month average underlying trend of 2.3%, we would say that the Central Bank of the Republic of Turkey (CBRT) has room for a rate cut at the next Monetary Policy Committee (MPC) meeting. As there is no scheduled MPC meeting in May, we will be exposed to quite tight monetary conditions in the next 1.5 months.

However, in the post-March 19th currency shock period, the priorities of monetary policy (in a way that does not contradict but rather supports the fight against inflation) are to prevent reserve losses and stop the tendency of resident investors towards foreign currency. A rate cut may not be on the agenda until a significant recovery in reserves is observed. It seems more realistic to point to July 24th instead of June 19th for the start of interest rate cuts.

2025 inflation forecast

We maintain our end-2025 inflation forecast at 30%. Although the April data came in slightly higher than our expectations, the additional tightening steps implemented by the CBRT and the downside risks in oil prices balance this out. On the other hand, we believe that the CBRT will need to slightly revise its year-end inflation forecast of 24% upwards towards 30% at the May 22nd Inflation Report meeting.

Serhat Gürleyen, Research Director Dağlar Özkan, Economist