“The midpoints of our inflation forecast range correspond to 60.4% at the end of 2022, 19.2% at the end of 2023 and 8.8% at the end of 2024,” said CBRT Chairman Kavcioglu.
President of the Central Bank of the Republic of Turkiye (CBRT), Sahap Kavcioglu, at the information meeting he held at the Central Bank Headquarters to promote the third inflation report of the year, said that they took the economic outlook as a starting point while producing medium-term forecasts.
Kavcioglu stated that they reviewed and updated the assumptions for external factors such as import prices, food prices, global growth and fiscal policy. “As the tension between Russia and Ukraine turned into an environment of hot conflict, commodity prices, which reached historically high levels, decreased recently. In addition, the relaxation of epidemic measures in China and the increase in freight capacities also supported the decline in commodity prices. Thus, the upward forecast deviation that occurred at the beginning of the current reporting period was partially compensated by the positive developments in the last period. On the oil prices, there is a view that supply-side factors such as the continuation of sanction commitments against Russia, maintenance and repairs of some energy facilities, along with the concerns about global demand, continue, albeit at a decreasing rate. In this context, we have kept our yearly average assumptions regarding crude oil prices and the general level of commodity prices for 2022, while updating them downwards for 2023. “We have updated our assumptions for food prices upwards for 2022 and 2023, taking into account geopolitical risks, high agricultural commodity and energy prices, trade restrictions and supply constraints.”
Underlining that they have revised their assumptions regarding foreign demand downwards compared to the previous reporting period, due to the increase in uncertainties regarding geopolitical risks, rising energy costs and possible supply shortages on global economic activity, “We also assumed that due to the increase in global inflation, financial conditions in the upcoming period will be tighter than anticipated in the previous reporting period. While producing the forecasts, we have taken an outlook in which macroeconomic policies are determined in a coordinated manner within the scope of liraization steps, focusing on reducing inflation with a medium-term perspective.”
Sharing the inflation forecasts, Kavcioglu said:
“Within the framework of our basic assumptions and short-term projections, we predict that inflation will gradually decrease and converge to the targets, with the re-establishment of the global peace environment and the normalization of commodity prices, including energy, with the re-establishment of the global peace environment and the end of negative supply shocks, under an outlook that the monetary policy stance will be determined in line with the goal of sustainable price stability.
Another important factor I would like to point out regarding our estimates is related to our forecast ranges. As inflation rises, the distribution in inflation expectations widens, thus widening the range in which inflation can be predicted. This is reflected in our forecasting path. In this context, the midpoints of our inflation forecast range correspond to 60.4% at the end of 2022, 19.2% at the end of 2023 and 8.8% at the end of 2024.
“We raised the year-end inflation forecast to 60.4%”
Thus, we raised our 2022 year-end inflation forecast from 42.8% to 60.4% with a 17.6-point update, and increased our 2023 year-end forecast from 12.9% to 19.2% with a 6.3-point update. The update in the initial conditions for both years had an impact on the forecasts by 4.1 and 4.4 points, respectively. The revisions in the Turkish lira-denominated import prices and food prices assumptions raised the 2022 inflation forecasts by 7.4 and 3.0 points, respectively, while increasing the 2023 inflation forecasts by 0.1 and 1 points. Adjustments in managed and directed prices and the increase in real unit wages had the effect of increasing the year-end inflation forecast for 2022 by 2.8 points in total. The contribution of the update in these items to the year-end inflation forecast for 2023 remained lower at 0.9 points. On the other hand, we calculate that the effect of the update in the output gap for 2022 and 2023 will be quite limited on the forecasts.”
Source: Trthaber / Translated by Irem Yildiz