The Central Bank (CB) forecasted year-end inflation for 2022 to be 23.2% in its first inflation report of the year. According to the CB, inflation may even fall to 18.2% in 2022. The highest estimation was 27.8%. The report also included the year-end inflation for 2023: 8.2%!

The inflation report includes forecasts and risks that may pressure these estimations. Let’s summarize:

► The report points out pressures on producer prices, cumulative effects of TRY devaluation, high commodity prices, and energy price adjustments in the cost-driven risks chapter.

► “The latest data suggest that the deterioration in the pricing behavior has been increasing upside risks to inflation. The increase in the frequency of price updates and the corresponding decrease in the average time that a price stays unchanged emerge as one of the main factors accelerating inflation. In addition, the increase in the tendency to index prices to foreign exchange (FX) rates significantly increases the pass-through from exchange rates to consumer inflation. Survey-based indicators and inflation compensations suggest that inflation expectations have increased. In addition to expectations, inflation uncertainty has been also increasing.”

► “The disinflation process may be delayed, should the path of administered/directed prices and tax adjustments exceed the path envisaged in this report.”

► The report emphasizes that FX rate developments are the most important risk factor to be closely monitored in the upcoming period.

► The report states that central banks continue their supportive monetary stances and that a possible tightening scenario may affect financial markets. “On the other hand, the impact of such risks through the portfolio flows channel towards Turkey are judged to be relatively limited, considering the current levels of non-residents’ portfolio positions,” the report said. But they do not mention that there will be almost no new portfolio inflow in such a situation.

This forecast with these risks! So, is there any possibility for this forecast to come true? Let’s consider that.

We estimate the Consumer Price Index (CPI) surge to hover around 13.5%-15.5% in January.

Ending the year with an inflation of 23.2% after the CPI rises by 13.5% in January will be possible if the total CPI increase is kept at 8.5% in the remaining 11 months.

In the meantime, the Treasury and Finance Minister Nureddin Nebati has said that inflation has the potential to not fall below 30% this year.

So, it’s unknown what the CB saw and what it considered to forecast the year-end inflation at 23.2%.