Commerzbank’s Tatha Ghose expects Turkey’s June Consumer Price Index (CPI) to show a modest disinflation surprise, with headline and core rates easing slightly and month-on-month inflation potentially below 1%. He cautions that underlying inflation remains high, global disinflation offers limited help, and entrenched domestic pressures mean interest rates cannot be safely cut without risking renewed Lira weakness.

High underlying inflation keeps Lira exposed

"Turkey’s statistics office (Turkstat) will publish June CPI and PPI data later today. The analyst consensus expects headline CPI at 32.1%y/y and core at 30.1%y/y, both slightly softer than the previous month. We see possibility of a dovish surprise by the data."

"We see possibility of a dovish surprise by the data. On the surface, this will be described to be confirming disinflation and will probably be cited by policymakers as verification that their strategy is working."

"First, after seasonal adjustment, such a print would still imply a 1.8%m/m rate of increase – which annualises to roughly 24% underlying inflation – and this will likely prove to be an interim low before the month-on-month rate creeps up again."

"Secondly, this prospective moderation in Turkey will lose significance amidst the widespread downside inflation surprises from elsewhere across Europe, including from Poland, where month-on-month price change dropped to outright negative. In other words, global disinflation is clearly occurring, but it is only weakly helping Turkey."

"This difference matters. If Turkey’s inflation problem is still domestically driven and entrenched in expectations, not just imported, then interest rates cannot be safely lowered and the lira will stay vulnerable to renewed pressure if CBRT [Central Bank of the Republic of Türkiye] were to signal that rate cuts are a matter of ‘when’ not ‘if’."

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