At the 3rd Inflation Report meeting of the year, The central bank raised its year-end inflation forecast to 60.4% from 42.8% in April. The Bank predicted that consumer inflation will reach 19.2% in 2023, making a revision of approximately 6 points compared to the previous forecast period. The estimation path seen on the relevant slide in Governor Mr. Şahap Kavcıoğlu's presentation shows that inflation is expected to converge to 90% in the September-October period and to experience a sharp decline (probably due to the base effect) in the last two months of the year. We do not see any other factor other than the base effect as supporting this decline, which is expected to spread to the beginning of the next year. We state that we will not be at a permanent recovery point in a situation where economic policies do not turn into a tangible inflation focus.
Some highlights from the CBRT Inflation Report meeting;
· The Central Bank increased the energy price inflation from 45% to 87.2% for 2022, and from 15% to 22% for 2023. The assumption of average oil barrel price for 2022 was reduced from $102.2 to $99.6, and for 2023 from $93.9 to $74.7. We think that the downward revision in oil prices is attributed to the expectation that the geopolitical tensions between the West and Russia will ease.
· Food price inflation forecast was lowered from 49% to 71.3% for 2022 and from 15% to 25.7% for 2023. Although the previous forecast values were revised upwards, the expectation that there will be a slowdown in the next year within the framework of the better-than-expected harvest is noteworthy. The current level of food inflation was 93.9% in June inflation data. We think that the outlook stemming from the exchange rate and agricultural production costs is negative in terms of food inflation.
· The increase in the Central Bank's 2022 inflation forecast was driven by the 7.4 points increase in Turkish lira import prices, the 4.1 points increase in the underlying trend of inflation, 3 points increase in food inflation and 2.4 points increase in unit labor costs.
· It is predicted that the effect of exchange rate will decrease in the forecasts of the Central Bank. However, we think that it is difficult for TRY to enter a period of appreciation.
· Regarding the interest rate increase process of other central banks, Mr. Kavcıoğlu evaluated that Turkey has adopted an economic model aimed at increasing production and exports, that they are in the perspective of keeping interest rates low, and that time will show who implements the right policy.
· It was stated that CDS is at levels we do not deserve and should be much lower. Set us up and in the crucible of CDS falling; We think that recovery will be difficult unless a holistic solution basis is established for factors such as inflation and cost of living, which are the main problems of the economy, uncertainties are eliminated and policies are developed in line with the targets.
· It was evaluated that Turkey continues to increase its production and create employment despite external shocks thanks to favorable financial conditions and flexible production structure.
· It is thought that supporting exporting companies and the tourism sector with suitable long-term financial conditions will improve the current account balance and contribute to exchange rate and price stability. Kavcıoğlu argued that when the price shocks are corrected, Turkey will have a current account surplus and that the situation due to energy prices is temporary.
· The macroprudential measures taken and the exchange-protected deposit system are expected to support financial stability and price stability through liraization. Regarding market rates and bank rates, Kavcıoğlu evaluated that there will be a gradual convergence towards the policy rate.
When we evaluate the revisions made in the estimations, it is seen that the Central Bank has made more optimistic revisions according to the market stance, as in the last few Inflation Reports. Despite the upward revisions to the periodic forecasts in the inflation reports, the final target of the Central Bank remains at the level of 5%. In an environment where the Central Bank's forecast for 2022 is 60.4%, the median forecast for July market participants is 69.9%, the core inflation is 57.3%, and the inflation rates calculated by the ITO and some private enterprises are higher than the TURKSTAT data, there is a current picture that is inconsistent with the targets. The forecast for rapid disinflation remains somewhat optimistic in these circumstances.
There is no change in the current perspective of both the Central Bank and the government in the framework of the recent approach and the measures taken regarding the possibility of rate hikes. Factors such as the BRSA's commercial loan measures or the Central Bank's efforts to prevent the exchange rate increase with macroprudential measures currently constitute the set of temporary ancillary arrangements that do not use the main policy rate in any way. Inflation and exchange rate may be higher in the future under these conditions.
There is an economic model that continues with export-oriented growth. However, along with the problems experienced due to oil prices and the restrictions on commercial loans, there have been difficulties in accessing finance in general. Therefore, it is difficult to maintain a growth focus. The deterioration of pricing behavior, that is, inertia, seems to be the most troublesome problem of inflation. As of July 1, although there has been a serious increase in wages with the interim increase in the minimum wage, the purchasing power continues to erode. If inflation had not been so high, the purchasing power would have been higher. This situation leads to a decrease in per capita income even though the economy continues to grow.
As a result; The focus is on maintaining the growth-oriented economy perspective and trying to ensure price stability with macroprudential measures and the exchange-protected deposit system. The CBRT believes that inflation is largely dependent on external factors and that inflation will decrease if global increases in energy, food and core goods prices improve. We anticipate that inflation will also test higher than it is now and will be above official forecasts. In an environment where pricing behavior may deteriorate and inflation may become permanent, the conflict between the West and Russia may continue to keep global supply uncertain, and the inflation-increasing effects of growth-oriented fiscal policies may be observed, price risks are also on the upside. Despite this growth focus, we think that the economy is heading towards a slowdown or even a periodic contraction, as evidenced by the leading data. We consider that the macroprudential measures taken did not contribute positively to economic risks and uncertainties.
“Burada yer alan yatırım bilgi, yorum ve tavsiyeleri yatırım danışmanlığı kapsamında değildir. Yatırım danışmanlığı hizmeti, yetkili kuruluşlar tarafından kişilerin risk ve getiri tercihleri dikkate alınarak kişiye özel sunulmaktadır. Burada yer alan yorum ve tavsiyeler ise genel niteliktedir. Bu tavsiyeler mali durumunuz ile risk ve getiri tercihlerinize uygun olmayabilir. Bu nedenle, sadece burada yer alan bilgilere dayanılarak yatırım kararı verilmesi beklentilerinize uygun sonuçlar doğurmayabilir.”
Kaynak Tera Yatırım
Hibya Haber Ajansı