Inflation Report: Another day in the dialogue of the deaf

TURKEY - Report 30 Apr 2020 by Murat Ucer

The CBRT has released the year's second Inflation Report today, according to which the Bank cut its year-end inflation forecast from 8.2% to 7.4%, while keeping the 2021 forecast unchanged at 5.4%. The revision is due to downward pressure from lower commodity prices and weak domestic demand conditions, which seems to have more than offset the upward pressure from lira depreciation. More specifically, downward revisions to the output gap --and to a lesser extent food inflation (to 9.5% from 11% previously)-- are expected to shave off a total of 1.5 pps from 2020 year-end inflation forecast now (at 1.2 pps and 0.3 pps, respectively) while lira-denominated import prices and higher unit labor costs are expected to add 0.2 pp and 0.5 pp, respectively.

In effect, the Bank, against all odds, seems to be forecasting a Goldilocks scenario of sorts with disinflation accelerating from July onwards and the economy picking up (and hence, the output gap closing) relatively fast during the second half of the year -- a trajectory Governor Uysal confirmed during the Q&A.

Now read on...

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