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Release of the Turkish inflation figures for March showed a year-on-year increase of 38.1%, a figure that was softer than expected and suggests that the recent sell-off in the lira has not yet exerted significant upward pressure on consumer prices.
Capital Economics noted this development may give the Central Bank of the Republic of Turkey (CBRT) some leeway, potentially allowing it to keep interest rates steady in its upcoming meeting.
The inflation rate for March marked a decrease from the 39.1% year-on-year figure recorded in February, coming in below both Capital Economics’ and the consensus forecasts of 38.8% and 38.9%, respectively.
On a month-to-month basis, prices rose by 2.5%, which is less than the anticipated 3.0%. These figures only partially reflect the impact of the lira’s decline, which began mid-month, but so far, there appears to be a minimal inflationary effect.
While food prices saw a significant monthly increase of 4.9%, other categories more sensitive to exchange rate fluctuations showed modest changes.
For instance, clothing prices dropped by 2.5% month-on-month, and transport prices edged up by just 0.25%. Core inflation, which excludes volatile food and energy prices, increased by 1.5% month-on-month, one of the lowest rates since 2021.
The CBRT had adopted a hawkish tone during its interim rate hike in March, signaling a readiness to further tighten policy if necessary. However, given the latest inflation data, Capital Economics believes that the central bank is more likely to leave interest rates unchanged at its next meeting scheduled for April 17th.
Looking ahead, the April Consumer Price Index (CPI) figures, which are due on May 5th, will provide a clearer picture of the inflationary pressures stemming from the recent market turmoil in Turkey.
For now, the March data offers a moment of respite for the CBRT as it prepares for its forthcoming policy decision.
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