The forecast for the increase in consumer prices in 2023 is 65 percent. This is the Central Bank’s forecast, as is the forecast in the medium-term program for the 2024-2026 period.
At the beginning of the second half of the year, after the unprecedented increase in prices, especially in July and August, it was believed that it was almost impossible to close the year at 65 percent. I have written several times that I was of this opinion; I stated that my expectation was between 70-75 percent.
However, as we are almost in the middle of December, the trend suggests that the annual rate may remain below 65 percent, let alone well above it.
We should not be surprised if inflation in 2023 is only slightly below 65 percent.
December increase may be less than 3 percent
Consumer prices rose by 60.09 percent in the first eleven months of the year. If the increase in December is 3.07 percent, the year-end rate will be exactly 65 percent.
Any rate lower than 3.07 percent would keep the annual rate below 65 percent.
Here are signs that the December increase may not reach 3 percent.
There are four prices that we primarily look at in inflation forecasts. This time we have added natural gas to them.
Let’s take a look at the situation in these basic indicators.
Dollar almost flat
We are almost in the middle of December and there is almost no change in the dollar compared to the end of November. According to the Central Bank rates, the dollar went from 28.86 to 28.94. So it is horizontal. It seems that they want to end the year without exceeding the psychological limit of TRY 30, at least there is an effort in this direction. It seems that this limit will not be exceeded either.
It is more accurate to compare the value of the dollar not on a certain day, but on a monthly average. Accordingly, as of the half of December, there is an increase of almost 1 percent compared to the November average. This rate should be expected to exceed 2 percent by the end of the month. This indicates that the December average of the dollar will be realized around 29.30-29.40.
In conclusion, it can be said that the exchange rate will not have a significant impact on December inflation.
Gasoline got cheaper
The average price of gasoline in November was TRY 35.2. Gasoline price was reduced in December and if the price valid for today is applied until the end of the month, the average price for the month will be TRY 34.1. In other words, gasoline will be 3.1 percent cheaper in December compared to November.
Cheaper diesel has a greater impact
There was a discount in diesel fuel as well. Diesel, which averaged TRY 38.3 in November, will decrease to TRY 36.5 in December, assuming that the current prices will not change until the end of the month. The rate of decline in diesel price will reach 4.7 percent. Moreover, diesel prices have a much greater impact on other prices compared to gasoline.
Neither transportation will become cheaper because diesel prices have become cheaper, nor other prices linked to diesel prices; but at least this will not be a justification for new hikes. From this point of view, this nearly 5 percent reduction in diesel prices should be seen as one of the most important factors that will ease the pressure on December inflation.
No change in autogas
There is no change in the autogas price until today. In fact, the price of autogas does not change throughout the month except in very exceptional cases.
Autogas continues to be sold in December at the same price as in November. Although this item will not make a positive contribution to inflation, at least it will not have a negative impact.
Impact of natural gas
There is an important item that creates difficulties in inflation forecasts: natural gas.
The fact that the cost of residential use was fully covered by the state in May and the “zero price” method was introduced in the inflation calculation, and that the use of up to 25 cubic meters per month is subsidized until May 2024, started to create difficulties in calculating the reflection of this item on the CPI.
For example, although the price remained unchanged in November, it was as if natural gas had been raised by 479 percent. This hike, which did not exist in reality, was entirely the result of increased consumption. This virtual hike affected the CPI by 1.01 percentage points, i.e. almost one-third of the 3.28 percent increase was due to natural gas.
We wrote in this column that we estimated the effect at around 1.20 points, but the Central Bank announced this effect as 1.01 points in its November price developments report. The Central Bank announced this rate, but it was obviously calculated by TurkStat.
The Central Bank predicted that the effect of natural gas on CPI would be lower in December.
The trend confirms this prediction. There was no increase in natural gas prices this month either, only an increase in consumption.
Residential natural gas consumption usually increases by 100 percent in December compared to November, but the relatively mild course of this month suggests that the increase in consumption will not reach 100 percent. Since there is no increase, the size of the effect on the CPI will be determined by the increase in consumption due to the calculation method. Therefore, the smaller the increase in consumption, the smaller the effect on the CPI will be.
It seems that natural gas will have an impact of around 0.75 points on the December CPI increase.
In fact, it doesn’t really matter whether the year-end rate is slightly above or slightly below the forecast, 66 percent or 64 percent. These are still very high and bad rates that put Turkey at the top of the inflation rankings.
However, when we analyze the second half of the year on a quarterly basis, it is clear that the rate of increase has slowed down significantly.
In the third quarter, we saw an increase of 9.49 percent in July, 9.09 percent in August and 4.755 percent in September, for a total increase of 25.11 percent. This was a level that Turkey had never seen on an annual basis before 2021, let alone in these months.
The rate in the last quarter of the year will be 10.1 percent if December comes in at 3 percent. Of course, this rate is very high for a quarter, a rate that some countries have not seen in a year, but since we exceeded 25 percent in the previous quarter, we have to characterize 10 percent as a very moderate rate this time.
