The Turkish Lira this month has already breached 42.00 against the US dollar, showing the persistent economic pressure even as Turkey’s economy continues to deteriorate. Fitch Ratings and other analysts are forecasting a continued drop, with Fitch expecting it to get close to 43.00 in the next week or two. So far, this expected softness is most associated with inflation measures that suggest minimal month-over-month price slowdown.
In November, Istanbul’s CPI was up 38.3% year-on-year. That was down from the 40.8% surge recorded in October. This is indicative of hopeful momentum, the wider picture reveals ongoing issues for the Turkish economy. Correspondingly, Turkey’s headline inflation is predicted to fall from 32.9% to 31.7% YOY. At the same time, core CPI will probably drop from 32.1% to 31.5%.
However, even with these cuts, the month-on-month inflation figures are troubling. Most analysts expect a 1.6% increase in the headline inflation rate. They look for a 1.9% increase in core inflation over that time. Our measure supports these figures’ indications of a cooling trend in underlying inflation. It hasn’t been fast enough or soon enough to take the heat off the Lira.
As real as the Lira’s previous weakness was, that impact was washed out a bit by last month’s bogus inflation, year-on-year-only marked down, Piñata defense against reality. Both short- and long-term inflation expectations have been picking up speed in recent days, adding to the market mood. Commerzbank’s FX analyst Tatha Ghose emphasized that the Lira’s trajectory remains precarious, with ongoing inflationary pressures likely leading to further depreciation.
The CPI data from Istanbul for November might be foreshadowing a similar moderation in today’s national CPI numbers. Yet, the economic picture still remains unclear. Turkey is currently weathering an inflationary storm of its own. Fears are growing among investors and policymakers that these issues may push the value of the Lira lower and undermine Turkey’s economic stability.