Commerzbank’s Tatha Ghose argues that Turkey’s brief disinflation respite is already obsolete as higher Oil prices and external shocks dominate. Headline CPI slowed in March, but core dynamics remain strong and credibility concerns persist. Rising energy costs, a widening trade deficit, capital outflows and heavy intervention leave the Turkish Lira increasingly vulnerable to a disorderly adjustment if the regional war does not de-escalate soon.

Disinflation story eclipsed by energy shock

"Turkey’s March CPI print offered a brief moment of relief last Friday, with headline inflation slowing to 30.9%y/y and 1.9%m/m – below most estimates. Yet this downside surprise already looks outdated."

"Last and most crucial point: the renewed rise in energy cost points to a reversal ahead – hence, the backward-looking March data are beside the point."

"The shift in outlook because of the oil price is not hypothetical: policymakers have been explicit that the oil price shock will feed through materially, with FinMin Mehmet Simsek estimating a 3.6-4.4pps impact on inflation if oil were to stabilise at around US$85/bbl (we think that it will)."

"The current account situation was worsening since late last year as interest rates were being cut – now the outlook has turned firmly negative."

"We think, however, that lira management is increasingly fragile (resulting in noticeable drawdown of resources). If the war were not to de-escalate soon, the probability of a disorderly adjustment would rise materially."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)