Turkey's inflation rate eased in June for the first time in eight months, marking a faster-than-expected slowdown from its May peak. Headline inflation dropped to 71.6 per cent, down from 75.5 per cent in the previous month, according to data released on Wednesday. The central bank's preferred gauge, monthly price growth, also fell to 1.6 per cent. The median forecasts from economists surveyed by Bloomberg anticipated an annual rate of 72.6 per cent and a 2.2 per cent monthly increase. After enduring two years of intense cost-of-living pressures due to some of the world's highest inflation rates, Turkey may now be entering a period of rapid disinflation. This shift follows aggressive monetary tightening that saw the key interest rate surge by over 40 percentage points to 50 per cent within a year. Despite this positive development, many economists predict inflation will remain above the central bank's 38 per cent target for the year, with significant price deceleration expected in July and August due to the high base effect from 2023. Investors are closely monitoring this trend as they increase their exposure to local assets. Treasury and Finance Minister Mehmet Simsek emphasised the importance of reducing inflation below 42 per cent, a range considered critical by the central bank but still well above the official 5 per cent target. ING Bank's chief economist for Turkey, Muhammet Mercan, warned of ongoing challenges, such as rigid service inflation and deteriorating pricing behaviour, and expects the central bank to maintain a tight policy stance. While inflation expectations are declining among market participants, households remain sceptical, with future price growth anticipated at 71.5 per cent. This uncertainty may lead to increased spending if consumers expect prices to rise further, with the central bank noting that domestic demand remains at "inflationary levels." Attribution: Bloomberg.
