Disinflation Process Accelerates, Inflation Revision Expectations Increase
Fatih Karahan, Governor of the Central Bank of the Republic of Turkey (CBRT), shared the fourth inflation report for 2024 with the public. Karahan emphasized that the disinflation process progressed slower than expected, but the rebalancing in domestic demand continued with the effect of tight monetary policies. Reminding that the year-end inflation forecast was set at 38 percent, Karahan pointed out that an upward revision may be made in the forecast based on current economic indicators.
Disinflation Process and Balance in Demand
In the inflation report, Governor Karahan stated that although the disinflation process did not proceed at the targeted pace, macroeconomic indicators developed favorably. In particular, he stated that tight monetary policy and macroprudential measures have stabilized domestic demand. “The stabilization in demand is slowing the pace of price increases, which has a positive impact on inflation expectations.”
Differentiation in Services and Electricity Inflation
Stating that inflation in the services sector remained high due to seasonal effects such as the back-to-school period, Karahan said that price increases in non-rental services slowed down. Stating that improvements were observed in the pricing behavior in the electricity and industrial sectors, he said that these developments were promising in the fight against inflation.
Impact of Tight Monetary Policies
Emphasizing that the Central Bank’s tight monetary policies have stabilized the demand conditions in the economy, Karahan said that this stance will continue to be supported by macroprudential measures. However, he added that the pace of improvement in inflation expectations has been slower than anticipated. “The rate of generalization of price increases is decreasing, which supports the disinflation process,” Karahan said, adding that the tight monetary policy will be maintained decisively throughout 2024.
Shrinking Current Account Deficit
Stating that the narrowing in the current account deficit contributed to the economic rebalancing process, Karahan said that the slowdown in domestic demand supported the current account deficit to reach sustainable levels. He underlined the improvements in the pricing behavior of firms, especially in the industrial sector, and emphasized that this situation is critical for sustainable growth.
Expectations for Revision in Inflation Forecast
Failure of the CPI data announced by Turkstat to reach the targeted downward trend brought a revision in the Central Bank’s year-end inflation forecast to the agenda. Karahan stated that the rebalancing in demand conditions and tight monetary policies will continue to bring inflation under control. However, given the effects of domestic and external conditions, forecasts may need to be reassessed.
Macroeconomic Recovery and Expectations
The report emphasized the positive impact of weakening demand conditions on inflation and stated that the decline in the output gap continued in the last quarter of the year. Karahan said that this rebalancing process in the economy slowed down the general spread of price increases. “With the effect of our tight monetary policy, we will take more decisive steps in the disinflation process,” he said, revealing the Central Bank’s determined stance in the fight against inflation.
