CBRT President Fatih Karahan announced the 4th and last Inflation Report of the year. Accordingly, the CBRT revised its inflation forecast from 28 percent to 29.5 percent for the end of 2026, from 15 percent to 21 percent for the end of 2027, and from 9 percent to 13.5 percent for the end of 2028.
Here are the important highlights from Karahan's presentation:
-Recent data indicate that the improvement in the underlying trend of inflation has become evident. We find the slowdown in services inflation important in items that have exhibited high inertia in the past.
-Supply-side shocks caused by geopolitical developments limit the decline in headline inflation. The continuation of this situation keeps the upside risks regarding the inflation outlook alive and requires a cautious stance.
-We will maintain our tight monetary policy stance, which will ensure the continuation of disinflation and the decline in inflation in line with our interim targets.
VOLATILITY CONTINUES IN ENERGY PRICES
-There was a significant increase in crude oil and natural gas prices in September and October. While volatility in energy prices continues due to geopolitical developments, we evaluate that there are risks in both directions.
-The impact of the war on the global growth outlook has been relatively limited outside the war zone.
-High energy prices continue to have an impact on global inflation and inflation expectations.
-Long-term bond interest rates of developed countries remain volatile and high.
-Growth slowed down in the second quarter of the year, led by domestic demand. While service production increased in the third quarter, industrial production decreased.
-The labor market is less tight than the headline unemployment rate implies.
-Indicators confirm the weak course of domestic demand. Data on demand indicators as a whole show that demand conditions are at a disinflationary level.
-Despite the difficulties in global trade and geopolitical conditions, exports showed a positive performance in the second and third quarters.
-Energy imports continue to trend upwards due to the impact of geopolitical developments. Imports other than gold and energy remain close to flat.
THE APPEARANCE IN TOURISM HAS NOT BEEN IMPROVED
-Despite the war, the general outlook in tourism did not deteriorate.
-Despite geopolitical developments, the current account deficit remains flat as a ratio to national income.
-Despite energy-related pressures, the improvement in other items continues.
-Energy prices came to the fore in the course of inflation in 2026.
DISINFLATION PROCESS SLOWED DOWN
-The disinflation process slowed down due to supply-side pressures. The effects of supply shocks on the inflation outlook are closely monitored.
-Although food inflation has decreased with the improvement in supply conditions, it remains volatile.
-While the slowdown in services inflation continues throughout the year, core goods inflation remains low. The weakening in demand conditions also supports this outlook.
THE SLOWING TREND IN RENT INFLATION IS BECOMING CLEAR
-The slowdown in rent inflation is becoming evident.
-The main trend, which rose in the March-June period due to the effect of the war, started to decline as of July. The improvement in the underlying trend is also confirmed by the trend inflation indicator, which reflects longer-term trends.
-Inflation expectations require maintaining a cautious stance.
-We actively used our liquidity tools and macroprudential framework, taking into account the recent developments in the financial markets.
-The decrease in funding costs was largely reflected in deposit and loan interest rates.
-Domestic residents' TL preference continues to remain strong.
OUTPUT FROM FUNDS DIRECTED TO DEPOSITS
-Following the developments in the fund market, outflows from funds largely turned towards deposits.
-Credit growth has slowed down recently.
-Volatility in gold prices and risk appetite is reflected in reserves.
-Although geopolitical developments kept the risks on foreign demand alive, global growth remained more resilient than the expectations in the first period of the war. In this context, we maintained our external demand assumptions for both years.
INFLATION FORECASTS
-The weakening of expectations regarding the normalization of energy shipments through the Strait of Hormuz and the increase in tensions in the region affected oil prices upwards. Taking these developments into account, we updated our oil price assumptions upwards for 2026 and 2027.
-Under this outlook, we updated our 2026 year-end inflation forecast upwards to 29.5 percent. We predict that inflation will stabilize at 5 percent, which is the inflation target in the medium term, after falling to our intermediate targets of 21 percent at the end of 2027, 13.5 percent at the end of 2028, and 9 percent at the end of 2029.
-While establishing our monetary policy stance; We will continue to evaluate the direction of risks and their possible effects on inflation expectations with a holistic approach.
-We will maintain the tight monetary policy stance until price stability is achieved.
