ISTANBUL: Turkey's inflation is expected to rise to 19.7% in September, a Reuters poll showed on Wednesday, as food prices remain elevated and the lira continues to decline following a surprise central bank rate cut.
Turkey's consumer price index (CPI) has risen more than expected in recent months, touching 19.25% in August, its highest level since April 2019, on the back of food and hotel and restaurant prices.
Even though inflation was already above its policy rate, the central bank unexpectedly cut its one-week repo rate to 18% last week, after emphasising a decline in core inflation.
The median forecast of 17 economists in a Reuters poll for annual inflation in September stood at 19.7%, in a range of 18.94% and 20.90%.
The monthly rate was seen at 1.35%, according to the median, with forecasts ranging between 0.71% and 2.30%.
Ozlem Bayraktar, chief economist at Tacirler Yatirim, said food and utilities would lead the rise in headline inflation, while core inflation could still decline slightly.
The lira, which has lost around 16% this year, declined sharply through September due to Governor Sahap Kavcioglu's dovish comments and hit a record low of 8.8995 against the dollar after last week's rate cut.
Bayraktar added that the current exchange rate levels increase the upward risks for inflation. "If there is an additional upward move in the exchange rate, this will affect both core and headline inflation," she said.
Kavcioglu's shift to focus on core inflation rather than the headline rate "does not paint a very supportive picture in the fight against inflation under current conditions," she added.
Year-end inflation expectations have risen sharply from 10.80% in the January poll, especially after President Tayyip Erdogan sacked a hawkish central bank governor in March.
The median estimate of 12 economists in a Reuters poll for year-end inflation was 17.83%, with forecasts ranging between 16.40% and 18.60%.
The median stood at 16% last month, before the rate cut.
Economists have been concerned about the central bank's independence, given frequent calls for easing from Erdogan, a self-described enemy of interest rates who sacked the last three governors over differences in policy.
Kavcioglu, who has emphasised the importance of core inflation after headline inflation rose above the policy rate in August, said on Thursday that pricing behaviour is expected to return to pre-pandemic conditions as normalisation progresses.
He said that it is difficult for monetary policy to have an effect on food prices, which were impacted by drought and other factors.
The Turkish Statistical Institute will announce September inflation at 0700 GMT on Oct. 4.
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