Turkish April inflation seen at 3.1% on energy prices, FX pass

ISTANBUL (Reuters) -Turkey’s monthly inflation rate is expected to climb to 3.1% in April, driven by energy prices and lira depreciation following the imprisonment of President Tayyip Erdogan’s main political rival, a Reuters poll showed on Tuesday.

The median estimate of 11 economists saw monthly inflation climbing to 3.1% in April from 2.46% in March. Forecasts ranged from 2.80% to 3.60%. Year-on-year, inflation is seen sliding to 38%, with forecasts ranging between 37.6% and 38.7%.

In April, Turkey raised electricity prices by 25% for residential use and 10% for industrial use while natural gas prices were increased by 20% for industrial use and 24.2% for electricity producers.

Economists calculate that due to the high weighting of energy prices in the inflation basket the recent hike would amount to a direct impact of some 0.5 points on inflation.

Economists said unprocessed food prices like fruits and red meat prices, as well as automotive prices which are directly impacted by currency volatility, are likely to impact the April inflation rise.

In March, Turkish assets suffered, with the lira dropping as much as 12% to touch 42 against the U.S. dollar after Istanbul Mayor Ekrem Imamoglu - Erdogan’s chief political rival - jailed over graft charges pending a trial.

The currency later recovered most of those losses thanks to market stabilising steps by the central bank. It has since remained near 38, some 4.6% weaker than before the imprisonment.

The central bank tightened its policy rate by 350 basis points, set the lending rate at 49% and sold some $50 billion in foreign reserves in the wake of the mayor’s arrest, data shows. The moves amount to 700 basis point of policy tightening since the arrest to counter market volatility.

Before that, the central bank had begun an easing cycle and gradually cut its policy rate to 42.5% as inflation fell from the level of more than 75% that it reached in May 2024.

In March, month-on-month inflation rose 2.46%, standing below expectations and slowed to 38.1% annually.

According to the median of the poll, economists expect inflation to fall to 30.5% at the end of this year. In the March poll, the end-year forecast stood at 30%.

In the minutes of its monetary policy committee meeting, the central bank said leading indicators show an increase in the underlying trend of inflation for April adding that price increases were observed in durable consumption goods with high exchange rate pass-through.

Finance Minister Mehmet Simsek said that although inflation expectations have been deteriorated the government does not expect permanent damage adding that inflation is seen to remain within the central bank’s target path.

The central bank’s year-end inflation forecast range midpoint is 24% and the upper band is 29%.

The Turkish Statistical Institute will release April inflation data at 0700 GMT on May 5.