November inflation was announced yesterday. Accordingly, consumer prices rose by 62 percent compared to a month ago, while the one-month increase was 3.3 percent. This is the second-highest November inflation since the index was published (January 2003). The record was set just two months after the start of that strange monetary policy in September 2021 (3.5 percent).
Istanbul Chamber of Commerce’s (ITO) November inflation is also the second-highest since 2003 (3.8 percent).
By the end of 2024, we know that the path of inflation will not be downhill. According to the CBRT’s forecasts, annual consumer inflation will rise slightly above 70 percent around May-June 2024. The forecast for the end of 2024 is 36 percent. This means that annual inflation will rise for a while and then start to decline. Unless, of course, the current monetary and fiscal policies are reversed.
The fact that the forecasted inflation path was not uniformly downward led the CBRT to refer to monthly inflation figures as part of its communication policy. This is where the basis for the first negative interpretation of November inflation emerges. The CBRT had started to draw attention to the downward trend in monthly inflation. Seasonally adjusted figures were as follows: August: 9.7; September: 4.4; October: 2.9. However, the realization for November was 3 percent. Let me emphasize again that these are seasonally adjusted figures. Otherwise, monthly (unadjusted) inflation also fell in November. But it would be wrong to look at unadjusted inflation to determine the trend.
The second and third negative points are, as mentioned above, the very high annual inflation and the second-highest November inflation in 21 years. There are also positive points to comment on. First, monthly inflation came in below expectations. Second, the difference between ITO inflation and TurkStat inflation is reasonable; this is particularly important for confidence in the statistics. Against this backdrop, it becomes clear how difficult the Central Bank’s job is. On the one hand, there are doubts about “will there be a U-turn?”, on the other hand, inflation is likely to rise and then fall, and on the other hand, there is a need to refer to data other than the TurkStat data.
And then there is this: The actual policy rate is at least a few percentage points below 40 percent. In this case, – compared to the 36 percent inflation forecast for end-2024 – the real policy rate is still not above zero. Why is it not possible to take the 40 percent repo rate as the policy rate? It is not, because in recent months the Central Bank has not been lending to banks at the repo rate, but rather borrowing from them at a lower rate. The real lira liquidity is provided to banks through foreign currency swaps. Its interest rate is significantly below 40 percent and its maturity is not weekly like the repo rate, but much longer. The reason why I emphasize the length of the maturity is that there is currently a surplus of lira-denominated debt (banks) with interest rates significantly below the previous policy rate of 35 percent, let alone 40 percent. It should also be noted that the swap facility encourages banks to borrow in foreign currency. I thought I would make a note of it in advance to bring it to this column in more detail after I think about it a little more.