Inflation comes in as expected, rising oil clouds Turkish central bank meeting

T his article was originally written for Türkiye Today's weekly economy newsletter, Turkish Economy in Brief, in its Sept. 7 issue. Please make sure you are subscribed to the newsletter by clicking here. September began with a busy flow of economic data and sharp market moves. As uncertainty in the Middle East increased again, oil prices rose 8.56% last week to $95.85 per barrel. As oil prices moved further away from the $70-$80 scenario, expectations that global inflationary pressures could persist for longer came to the fore. Bond yields, particularly in the U.S. and Japan, also reached their highest levels in years. Turkish markets entered September with second-quarter growth of 2.3%, which came in below expectations, as well as August inflation data. The Consumer Price Index (CPI), released by the Turkish Statistical Institute (TurkStat), rose 1.84% month-on-month in August, while annual inflation fell from 31.75% to 31.51%. Monthly CPI inflation had been expected to come in at around 1.95%, meaning the actual figure was slightly below expectations. The major groups pushing inflation higher in August were transportation, housing, education, and alcoholic beverages and tobacco. Transportation prices rose 4.82% month-on-month, contributing 0.82 percentage points to inflation and having the strongest upward impact of the month. In particular, increases in diesel, gasoline, and air transportation prices stood out. Education prices rose 8.62%, while alcoholic beverages and tobacco prices increased 6.89%, making them other major contributors to higher inflation. Food and non-alcoholic beverage prices rose just 0.22%, helping pull headline inflation lower. Seasonal declines in fresh fruit and vegetable prices, in particular, helped contain food inflation. The 3.54% seasonal decline in clothing and footwear prices also reduced monthly inflation by around 0.24 percentage points. Financial institutions offered notable assessments following the release. Local institutions Akbank and Is Yatirim said the moderate August CPI reading could not be explained solely by seasonal factors. Both said weak pricing in core goods and slowing domestic demand were also limiting the pass-through of cost shocks into consumer prices. Is Yatirim also noted that the three-month average of the underlying inflation trend had fallen to its lowest level since the end of 2021. Meanwhile, services inflation remained elevated. Monthly services inflation stayed above 3%, while annual services inflation rose to around 40%. Pricing in communications and transportation services was particularly influential. By contrast, the slowdown in rent inflation stood out as a positive development. Chart shows Türkiye's monthly and annual consumer price index changes from January to August 2026, alongside changes in goods, services, and selected CPI measures. (Chart via CBRT) Watching oil prices Higher energy and refined petroleum product prices are raising production costs, which could eventually feed through to consumer prices in the coming months. Most institutions identified energy prices and geopolitical developments as the main upside risks for the period ahead. The possible impact of higher oil prices on CPI through fuel and transportation prices will continue to be closely watched in September and October. Akbank warned that if the gradual phaseout of the sliding-scale fuel tax system continues alongside persistently high oil prices, additional energy-driven pressure could become significant during the rest of the year. Goldman Sachs also said rising energy prices had shifted the risks to its inflation forecast to the upside. Year-end CPI inflation forecasts from institutions that have published estimates are largely concentrated between 28% and 30%. Tacirler Yatirim forecasts 28%, Kuveyt Turk Yatirim 28.8%, and Alnus Yatirim 28.81%, while Integral Yatirim and Goldman Sachs forecast 29%. OYAK Yatirim, Yatirim Finansman and Is Yatirim forecast 29.5%, while Garanti BBVA Yatirim, Gedik Yatirim, BBVA Research and Akbank expect year-end inflation of 30%. Citi has a more cautious outlook, forecasting that inflation could finish the year slightly above 30.9%. When will rate cuts begin? Markets are now focused on the Central Bank of the Republic of Türkiye's (CBRT) Monetary Policy Committee (MPC) meeting this week, on Sept. 10. Most institutions do not expect the central bank to change its policy rate. The resumption of one-week repo auctions at the end of August and the decline in funding costs toward the policy rate from the overnight rate have been seen as signs of gradual normalization or limited easing in monetary policy. Expectations for the timing of a rate cut are largely centered on the October meeting. Alnus Yatirim, Kuveyt Turk Yatirim and Integral Yatirim expect rate cuts at the October and December meetings. Yatirim Finansman also points to Oct. 22 for the first cut. BBVA Research brought forward its previous expectation for a 100-basis-point rate cut in December to October. Is Yatirim also expecting the central bank to begin cutting rates by 100 basis points in October? Among foreign institutions, Citi and ING continue to expect the policy rate to remain unchanged at the September meeting. Year-end policy rate forecasts are largely concentrated in the 35%-36% range. Alnus Yatirim, Kuveyt Turk Yatirim, Integral Yatirim, Citi and Is Yatirim expect the policy rate to end the year at 35%. BBVA Research and Akbank forecast 36%, while Gedik Yatirim expects the rate to finish in the 35%-36% range. Seker Yatirim said there could be room for 200-400 basis points of rate cuts during the rest of the year, depending on the underlying inflation trend. The overall picture points to limited, data-driven rate cuts rather than an aggressive easing cycle. Line chart shows Türkiye's annual inflation and policy rates from May 2024 to August 2026. (Chart by Onur Erdogan/Türkiye Today) Autumn months are critical Most institutions agree that August inflation presented a positive picture at the headline level but requires caution when looking at the details. The below-expectations CPI reading and decline in annual inflation were welcomed, while persistent services inflation, limited improvement in core indicators, broad-based price increases and accelerating producer costs emerged as the main risks to the disinflation process. Oil and energy prices, geopolitical developments and price increases linked to the start of the academic year were also listed among the risks. By contrast, the slowdown in core goods and rent inflation was viewed as a positive development. Weak domestic demand and a controlled exchange-rate policy were seen as factors that could support disinflation over the medium term. Most institutions expect monthly inflation to rise again in September compared with August, although a favorable base effect could allow annual inflation to continue declining. BBVA Research forecasts monthly inflation of around 2% in September, while Is Yatirim expects around 2.05%. Education-related price increases and fuel costs pose upside risks to monthly inflation in the short term. It is also considered difficult to repeat the same degree of low food inflation driven by fresh fruit and vegetable prices that helped pull August inflation lower. For this reason, the September-October period stands out as critical both for the durability of the disinflation process and for the start of the rate-cut cycle. Addressing the data, Treasury and Finance Minister Mehmet Simsek said structural policies were continuing in line to achieve lasting price stability, while steps were being taken to limit the impact of global price shocks on inflation. Simsek noted that inflation continued to decline despite periodic price increases and higher fuel prices affected by the war. The minister said annual core goods inflation had fallen to 15.9%, its lowest level since November 2020, while annual rent inflation had also declined to its lowest level in 46 months.