Turkish August monthly inflation at 1.84%, just below forecast

Turkish monthly inflation in August stood at 1.84%, slightly below market expectations, while the annual inflation rate reached 31.51%, according to data released by the Turkish Statistical Institute on Thursday. The monthly inflation rate had been forecast to be 1.93%, and the annual rate 31.62%, owing to escalating oil prices resulting from the Iran conflict.

Education fees accounted for the largest increase, surging over 8% in August, followed by beverages and tobacco products, which rose by approximately 7%, and transportation, which increased by 4.8%. To mitigate the impact of oil price volatility, Turkey temporarily suspended a special consumption tax on diesel until the end of the month. Afterward, it will be progressively reintroduced. Gasoline and liquefied petroleum gas will continue under a sliding-scale fuel tax system until October 1 to help curb price hikes.

In July, consumer prices climbed 1.78% month-on-month and 31.75% year-on-year. Turkish Finance Minister Mehmet Simsek announced via X that the government remains committed to structural policies to achieve stable prices permanently. The central bank reintroduced one-week repo auctions late last month, which had been halted since March to curb inflationary effects of the Iran war. The overnight interest rate at the central bank fell to 37%, down from the previous 40%.

Economist Haluk Burumcekci from Burumcekci Research and Consultancy anticipates the central bank to keep the policy rate steady at its upcoming meeting on September 10. However, Burumcekci predicts the bank will enact rate cuts of 100 basis points at each of the October and December meetings due to ongoing global uncertainties. In August, the central bank adjusted its inflation forecast for the year's end to 28% from 26%, attributed to the situation in energy prices.

Markets generally assume the central bank will hold its policy rate steady during the September 10 meeting. Nonetheless, investors are keenly watching any escalation in tensions in the Iran war. The report also revealed that the domestic producer index grew by 2.57% month-on-month in August, marking an annual increase of 27.95%.

Moreover, Turkey's trade deficit expanded by 22.3% year-on-year in August, reaching $5.2 billion. Imports increased by 10.5% to $28.7 billion, while exports rose by 8.1% to $23.5 billion. The current account balance is projected to record a surplus in August, as per Trade Minister Omer Bolat's presentation.