Annual inflation in Turkey continued to trend down in July. The drop came despite revisions to the special consumption tax (SCT) and administrative price adjustments as well as upward pressure on food prices
Following the Central Bank of Turkey's warning related to a temporary rise in July inflation due to "adjustments in administered prices and taxes as well as supply-side factors in unprocessed food prices", the turnout was 3.23% vs the consensus of 3.45%. However, because of the large favourable base effect, annual inflation recorded a significant drop to 61.8% from 71.6% a month ago and maintained its downtrend.
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Regarding the underlying trend, the CBT sees a decline in seasonally-adjusted monthly inflation to around 2.5% on average in the third quarter, and slightly below 1.5% in the last quarter of the year. July headline figure showed a MoM increase as expected, mainly driven by the goods group, while the increase in services and core trends remained relatively limited.
The housing group turned out to be the main contributor at 1.19ppt with a 38% hike in electricity fees and continuing upside pressure in rent.
The downtrend in annual inflation will likely continue with another pronounced drop in August. Recent statements by the governor and deputy governor show efforts to guide inflation expectations
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