Inflation Targeting: Now Officially Tenuous

Inflation in Turkey has not necessarily been a special case, but is likely to be given its current levels. We previously noted that annual CPI growth will see a double-digit figure in months to come (see here, here and here). Even worse, according to the survey of the central bank the inflation expectations have deteriorated, continuing its upward trend started back in 2013 (see the chart below).

Turkish central bank set a long-term inflation target of 5% which it has failed to hit for a long time. Let alone, the bank’s survey shows that market participants see inflation higher and higher as 24-month forward-looking expectations hit a record high at 7.7% ─the highest figure even in the data set─ while 12-month ahead figures were at 310 bps above the desired level for the inflation.

You better watch out this.