Turkish inflation momentum is not recording noticeable deceleration any longer, except in (misleading) year-on-year comparison, Commerzbank's FX analyst Tatha Ghose notes.

Lira to continue depreciating

"The August CPI release confirmed our concerns: headline inflation slowed modestly to 33.0%y/y from 33.5%y/y in July, but the monthly increase of 2.0%m/m was above-consensus and translates to 2.7%m/m after seasonal adjustment (implying annualised 38%), after 2.5%m/m in July. Services inflation once again led the rise, with rents climbing 4.6%m/m and transport services 3.4%m/m."

"Core inflation edged lower to 33.0%y/y, but at 1.7%m/m after seasonal adjustment, it remains incompatible with inflation moderating to even 10% or 15% in the medium-term, let alone to CBT’s 5% target. Meanwhile, producer prices accelerated to 2.5%m/m, confirming risks of continued pipeline pressures, in particular the pass-through effect of an (annualised) 42% lira depreciation rate."

"In summary, CBT’s year-end forecast range of 24%-29% is achievable in a year-on-year sense because of a high base, but medium-term targets do not appear achievable in an underlying sense. For inflation to properly stabilise at, say 15%, monthly prints cannot average faster than 1.17%m/m – a target which looks challenging for now. And our skepticism is centred around the observation that CBT seems to think that tight monetary policy has yielded results and can already be unwound. Against this backdrop, we forecast the lira to continue depreciating."