CBRT/Gaye Erkan:  Medium-term projections-2

This is the second installment of our coverage of TURKEY’s third inflation report of the year. The below excerpt covers highlights from Gaye Erkan’s opening speech.

After the economic outlook that I have summarized so far, I will now share with you our medium-term projections.


First of all, I would like to mention that in order to improve our forecast performance, we have updated our modeling framework to include the nonlinear effects of large shocks.

Accordingly, we revised the year-end forecast mid-points as 65 percent for 2023, 36 percent for 2024 and 14 percent for 2025.

We revised the lower and upper bounds of the forecast range as 62 percent and 68 percent for 2023, and 30 percent and 42 percent for 2024.


Here, I would like to emphasize two points. Firstly, we have widened the uncertainty band around our forecasts due to the increased geopolitical risks and uncertainties regarding administered prices.


Secondly, although we have revised our forecasts upwards, we estimate that the timing, pace and the course of disinflation will remain unchanged.

As for the details of our forecast path, after high increases in July and August, the monthly increases in consumer prices weakened in September. Leading indicators suggest that the slowdown in monthly inflation continued in October.


As we have stated in our monetary policy decision documents, we also expect a decline in the underlying trend of monthly inflation. Nevertheless, we expect that there will be temporary rises in the monthly inflation path in November, January and May owing to several factors that fall outside the scope of the monetary policy.


For example, we expect that households will exceed the free natural gas utilization limit once natural gas consumption increases in November. This will have an upward mechanical effect on inflation, causing a temporary rise in monthly inflation in November. As for January 2024, we expect the impact of minimum wage adjustments, the developments regarding services items with time-dependent price setting and automatic tax adjustments to kick in.


The peak of annual inflation will be recorded in May 2024 due to base effects stemming from natural gas prices.  In the second half of 2024, we expect a strong and uninterrupted disinflationary process to begin as the cumulative effects of the monetary tightening will begin to take hold.

Now, I would like to mention the sources of revisions in our forecasts. 2.9 points of the 7-point upward revision in the inflation forecast for end-2023 is the reflection of the inflation that posted a higher-than-projected increase in the July Inflation Report. Meanwhile, 1.3 points resulted from the developments in food prices. The impact of developments in energy import prices, particularly oil, on the forecast revision is 2 points.


We have revised our forecasts for end-2024 by 3 points, 1.4 points of which stem from the higher-than-estimated inflation stated in the previous Report and 1.5 points from administered prices. Meanwhile, the output gap has had a downward impact on forecasts.


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Published By: Atilla Yeşilada

GlobalSource Partners’ Turkey Country Analyst Atilla Yesilada is the country’s leading political analyst and commentator. He is known throughout the finance and political science world for his thorough and outspoken coverage of Turkey’s political and financial developments. In addition to his extensive writing schedule, he is often called upon to provide his political expertise on major radio and television channels. Based in Istanbul, Atilla is co-founder of the information platform Istanbul Analytics and is one of GlobalSource’s local partners in Turkey. In addition to his consulting work and speaking engagements throughout the US, Europe and the Middle East, he writes regular columns for Turkey’s leading financial websites VATAN and www.paraanaliz.com and has contributed to the financial daily Referans and the liberal daily Radikal.