Turkish headline inflation likely to have eased in June

Turkish consumer price inflation data for the month of June is set to release tomorrow. After the sharp fall of the Turkish lira and delayed policy tightening from the central bank last year, inflation has been elevated for a long period of time in the country. Nevertheless, for the last few months, inflation has been on a downward trajectory, falling more rapidly than expectations, with May inflation falling to 18.7 percent year-on-year.

A quicker than anticipated deceleration in inflation might be consistent, as it might give an incentive for the nation’s central bank to start lowering policy rates, noted Wells Fargo in a research report. Monetary easing from the central bank at this time might possibly be seen by markets as premature and wold likely lead to another sharp sell-off of the currency.

“Despite the economy exiting technical recession, it is still fragile, and a significant depreciation of the lira would likely throw Turkey’s economy back into recession. If CPI falls below consensus forecasts again in June, the probability of rate cuts could increase, and our focus would shift to the next monetary policy decision in late July”, added Wells Fargo.

According to consensus expectations, inflation is likely to have eased to 16.10 percent in June.