Turkey's CPI surprised to the upside in September, mainly due to higher food prices, though the downtrend we've seen in the annual inflation rate ceased. We think the central bank will likely opt for smaller cuts in its two remaining rate-setting meetings of the year as a result.

Image Source: Pexels

In September, Turkey's CPI inflation came in at 3.23% month-on-month, significantly higher than the consensus estimate of 2.6% and our call of 2.4%. This was mainly due to higher pressure in food prices, as forewarned by the Central Bank of Turkey (CBT). As a result, annual inflation, which had been on a continuous downtrend, rose for the first time since May 2024 to 33.3% from 33.0% a month ago. This was despite a supportive base; the five-year average for September in the 2003-based index was 2.6% vs 2.97% in September 2024 alone.

Year-to-date inflation, on the other hand, reached 25.4% vs the CBT’s 25-29% forecast range for 2025, according to the latest inflation report. The September data increases the risk of end-year inflation exceeding the upper band by the end of 2025.

The PPI increased by 2.5% MoM, and more than half of the monthly change is attributable to food products alone. Annual producer inflation inched up to 26.6% year-on-year, having remained on a gradual uptrend since April. However, the current level of PPI inflation indicates that cost pressures remain moderate due to the CBT’s continuing control over the exchange rate.

Core inflation (CPI-C) rose by 3.2% MoM, bringing the annual rate down to 32.5% on the back of a large base in 2024. Preliminary seasonally adjusted data (set to be published by TurkStat and closely monitored by the CBT) indicates that, in three-month moving average terms, the underlying inflation trend gradually rose in the third quarter.

Inflation outlook (%)

Source: TurkStat, ING

Breaking down the data:

• The food group made the largest contribution to monthly inflation (1.11ppt), driven by both processed food and unprocessed food and reflecting adverse weather conditions. Annual food inflation reached 36.1% vs the CBT’s assumption for this item at 26.5% at the end of 2025.
• The second major contributor was education, with a 0.48ppt impact as the school season returned. Annual inflation in this group reached 66.1%, the highest in the CPI basket.
• This was followed by the housing and transportation groups (0.44ppt each), driven by persistently high rents and higher coal prices for the former, as well as an adjustment in energy prices and transportation services for the latter.

As a result:

• Goods inflation rose to 28.1% YoY, while core goods inflation remained flat at 19.9% YoY.
• Services inflation continued to decline, standing at 44.7% YoY. This was its lowest level since mid-2022 – though it remains elevated, showing the extent of ongoing inertia.

Annual inflation in expenditure groups

Source: TurkStat, ING

Overall, Turkey's stronger-than-expected inflation data for September shows the impact of structural factors and reaffirms the ongoing difficulties in achieving services disinflation, which requires a marked improvement in price-setting behaviour and in inflation expectations. Provided that no unforeseen shocks arise in the remainder of the year, we anticipate that the annual inflation rate could be above 30% by the end of 2025.

We think that the lack of a significant improvement in the underlying inflation trend (in three-month moving average terms) shows upside risks to the CBT's inflation projections, and could lead to a reconsideration of the pace of rate cuts; the central bank has already emphasised that the size of these cuts will depend on the inflation outlook. Therefore, given the commitment to the 2026 target of 16% in the recent Inflation Report and Medium-Term Plan, we think that the CBT will likely opt for a smaller cut in its two remaining rate-setting meetings.

More By This Author: