Diverging Inflation Expectations: What Household and Real Sector Data Reveal in Turkey

New surveys offer a nuanced look at Turkey’s inflation dynamics, highlighting both common ground and key differences between household and business expectations, crucial for future policy.

Istanbul, Turkey – The pulse of Turkey’s inflation dynamics is once again at the forefront following the release of the latest surveys. A new study on household inflation expectations from Koç University, led by Prof. Dr. Cem Baslevent, combined with the Sectoral Inflation Expectations Survey published by the Central Bank of the Republic of Turkey (CBRT), reveals both shared insights and significant divergences. Analyzing these two surveys together offers a more holistic perspective on the roadmap for combating inflation and anticipated price developments in the coming period.

Household Inflation Expectations: What Koç University Says

The Koç University household inflation expectations survey, regularly published by Prof. Dr. Cem Baslevent’s research team, sheds light on consumers’ perceptions of price increases and their future expectations. According to the latest results, the inflation rate households expect for the next 12 months, while showing a slight decline compared to the previous month, remains at high levels. Consumers anticipate continued increases in essential spending categories like food, rent, and transportation. Food inflation expectations, in particular, are among the top concerns for households.

Another notable point in the survey is that the belief in falling inflation has not yet fully settled in. A significant portion of households expects inflation to remain high or to decline at a slow pace. This sentiment could have a decisive impact on pricing behaviors and consumption decisions.

Inflation Through the Lens of the Real Sector: CBRT Survey Details

The CBRT’s Sectoral Inflation Expectations Survey, regularly conducted with the participation of real sector representatives, reflects the business world’s inflation expectations. The latest results indicate a limited downward revision in the real sector’s 12-month inflation expectations compared to the previous month. However, despite this improvement, expectations still remain above the Central Bank’s year-end inflation target.

Sectorally, some sectors show higher inflation expectations than others. Manufacturing and services sectors, directly affected by rising input costs, are taking a more cautious stance on future price increases. The survey reveals that the real sector is closely monitoring the impact of exchange rate stabilization on inflation and potential changes in demand. In businesses’ pricing behaviors, expected demand trends, in addition to cost pressures, emerge as a significant factor.

Commonalities and Differences from the Two Surveys

Both surveys agree that inflation expectations generally remain high but signal a certain slowing trend. However, there are nuances between household and real sector expectations. Households, feeling the impact of daily price increases more concretely, tend to have higher and stickier inflation expectations. In contrast, real sector representatives may hold a more cautious optimism, influenced by macroeconomic policies and exchange rate stability.

Household expectations are typically more influenced by past inflation rates, while real sector expectations more closely track factors like the monetary policy stance, exchange rate movements, and global commodity prices. These differences highlight the challenges facing the Central Bank and economic administration in terms of expectation management. For lasting success in combating inflation, not only the effective use of policy tools but also the anchoring of expectations across all segments in the right direction is crucial.

Future Implications

The data from the Koç University and CBRT surveys once again underscores the sensitivity of the inflation fight. Persistently high expectations risk slowing down the disinflation process. This is critical for how long the Central Bank will maintain its tight monetary policy stance and the impact of its future actions on expectations. For inflation to be permanently lowered, monetary policy tools must be implemented in conjunction with fiscal discipline, structural reforms, and effective expectation management. New data released in the coming period will reveal more clearly how these expectations will evolve.