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BRIEFING ON 2021-IIINFLATION REPORT
Prof. Dr. Şahap KavcıoğluGovernor
29 April 2021
Ankara
Outline Macroeconomic Outlook
The Determinants of Inflation
Medium Term Projections
MACROECONOMIC OUTLOOK
Source: Consensus Economics Last Observation: April 2021Source: Consensus Economics Last Observation: 2022 Q4
GDP and Forecasts in Advanced Economies (Constant Prices, 2019 Q4=100)
2021 Growth Forecasts of Turkey’s Main Trading Partners (%)
4
Global Growth
70
80
90
100
110
12
.19
03
.20
06
.20
09
.20
12
.20
03
.21
06
.21
09
.21
12
.21
03
.22
06
.22
09
.22
12
.22
Forecast US Eurozone Japan UK
0
2
4
6
8
10
US
A
Un
ite
d K
ing
do
m
Ro
ma
nia
Isra
el
Ch
ina
Ira
q
UA
E
Ru
ssia
Po
lan
d
Ho
lla
nd
Sp
ain
Fra
nce
Ge
rma
ny
Ita
ly
Be
lgiu
m
January April
Source: Bloomberg, CBRT Last Observation: April 2021Source: Bloomberg, CBRT Last Observation: March 2021
Inflation* (%) Policy Rates** (%)
* Advanced Countries: USA, Euro Area, Japan, UK, Canada, South Korea, Switzerland, Sweden, Norway, Denmark, Israel. Developing Countries: China, Brazil, India, Mexico, Russia, Turkey, Poland, Indonesia, South Africa, Argentina, Thailand, Czechia, Colombia, Hungary, Romania, Philippines, Ukraine, Vietnam, Chile, Peru, Egypt, Morocco.
** Advanced Countries: USA, Euro Area, Japan, UK, Canada, South Korea, Australia, Switzerland, Sweden, Norway, Denmark, Hong Kong, Israel, New Zealand. Developing Countries: Russia, Brazil, Mexico, Turkey, Poland, Indonesia, South Africa, Thailand, Czechia, Colombia, Hungary, Romania, Philippines.
Global Inflation andPolicy Rates
5
-2
0
2
4
6
8
10
03
.07
03
.08
03
.09
03
.10
03
.11
03
.12
03
.13
03
.14
03
.15
03
.16
03
.17
03
.18
03
.19
03
.20
03
.21
Advanced Countries Developing Countries
0
2
4
6
8
10
12
04
.08
04
.09
04
.10
04
.11
04
.12
04
.13
04
.14
04
.15
04
.16
04
.17
04
.18
04
.19
04
.20
04
.21
Advanced Countries Developing Countries
Source: IIF Last Observation: April 26, 2021Source: IIF Last Observation: April 23, 2021
Portfolio Flows to Emerging Economies (Cumulative, Weekly, Billion USD)
Portfolio Flows to Emerging Economies(Billion USD, 4-Week Moving Average)
6
Portfolio Flows
-130
-110
-90
-70
-50
-30
-10
10
30
50
1 6 11 16 21 26 31 36 41 46 51 56 61 66
Week
Starting from Jan 21, 2020
Starting from Sep 08, 2008
-5
-4
-3
-2
-1
0
1
2
02
.19
04
.19
06
.19
08
.19
10
.19
12
.19
02
.20
04
.20
06
.20
08
.20
10
.20
12
.20
02
.21
04
.21
Bond Equity (Excluding China) Equity (China)
Source: CBRT, TURKSTAT Last Observation: 2020 Q4Source: TURKSTAT Last Observation: 2020 Q4
GDP (Seasonally and Calendar Adjusted, Chain-Linked Volume Index, 2009=100)
Contribution to Annual GDP Growth From Expenditure Side (% Point)
* Includes stock and chain index-driven statistical discrepancy. 7
Economic Activity
15,9
1,7
130
140
150
160
170
180
190
200
-15
-10
-5
0
5
10
15
20
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2016 2017 2018 2019 2020
QoQ Level (Left Axis)
-20
-15
-10
-5
0
5
10
15
20
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
2016 2017 2018 2019 2020
Change in Inventories* Net Exports
Investments Public Consumption
Private Consumption GDP
Source: TURKSTAT Last Observation: 2021 Q1Source: TURKSTAT Last Observation: 2021 Q1
Industrial Production Index (Seasonally and Calendar Adjusted, 2015=100)
Sectoral Turnover Indices (Seasonally and Calendar Adjusted, 2015=100)
8
Economic Activity
85
95
105
115
125
135
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2017 2018 2019 2020 21
* Average of January and February.
100
150
200
250
300
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2017 2018 2019 2020 21
Construction Retail Trade Services
Source: TURKSTATSource: TURKSTAT
Total and Nonfarm Employment (Seasonally Adjusted, Million)
Unemployment and Labor Force ParticipationRates (Seasonally Adjusted, %)
* Average of January and February. 9
Labor Market
Last Observation: 2021 Q1Last Observation: 2021 Q1
46
48
50
52
54
56
58
60
0
2
4
6
8
10
12
14
16
18
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1*
2017 2018 2019 2020 21
Labor Force Participation Rate (Left Axis)
Unemployment Rate
Nonfarm Unemployment Rate
20,0
20,5
21,0
21,5
22,0
22,5
23,0
23,5
24,0
24
25
26
27
28
29
30
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 41*
2015 2016 2017 2018 2019 2020 21
Th
ou
san
ds
Employment Nonfarm Employment (Left Axis)
Source: CBRTSource: CBRT
Investment Tendency by Firm Scale (Seasonally Adjusted, Increase-Decrease,%)
Factors Affecting Credit Demand of Firms* (%)
* Net percentage changes regarding the factors are calculated by taking the difference between the ratio of banks reporting that the factor in question has an increasing effect on credit demand and banks reporting that it has a downward effect.
10
Investment Tendency
Last Observation: 2021 Q1Last Observation: April 2021
-30
-20
-10
0
10
20
30
40
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2*
2017 2018 2019 2020 2021
Total Small Scale
Medium Scale Large Scale
-40
-20
0
20
40
60
80
1 2 3 4 1 1 2 3 4 1 1 2 3 4 1
2020 21 2020 21 2020 21
Fixed
Investment
Inventories and
Working Capital
Debt
Restructuring
Source: MoT, CBRT, TURKSTATSource: MoT, CBRT, TEA, TURKSTAT
Exports* (Billion USD, Seasonally Adjusted) Imports* (Billion USD, Seasonally Adjusted)
* March data are provisional data from Ministry of Trade. 11
ExternalBalance
Last Observation: February 2021Last Observation: February 2021
6
8
10
12
14
16
18
3
4
5
6
7
8
9
03
.17
07
.17
11
.17
03
.18
07
.18
11
.18
03
.19
07
.19
11
.19
03
.20
07
.20
11
.20
03
.21
European Countries
Excluding European Countries
Total (Left Axis)
9
12
15
18
21
24
03
.17
07
.17
11
.17
03
.18
07
.18
11
.18
03
.19
07
.19
11
.19
03
.20
07
.20
11
.20
03
.21
Imports
Imports (Excl. Gold)
Imports (Excl. Gold and Energy)
Last Observation: February 2021Source: CBRT
Current Account Balance* (Billion USD)External Balance
* March data is forecast. 12
-60
-40
-20
0
20
-9
-6
-3
0
3
03
.18
06
.18
09
.18
12
.18
03
.19
06
.19
09
.19
12
.19
03
.20
06
.20
09
.20
12
.20
03
.21
Monthly (Seasonally Adjusted) 12-Month Cumulative (Excluding Gold, Left Axis)
12-Month Cumulative (Left Axis)
Source: CBRTSource: CBRT
Loan Growth (Annualized 13-Week Average Growth, Adjusted for Exchange Rate, %)
13
Credit Developments
Last Observation: April 16, 2021Last Observation: April 16, 2021
0
3
6
9
12
15
12
.20
01
.21
02
.21
03
.21
04
.21
Commercial Consumer (Inc. Credit Cards)
0
10
20
30
40
50
60
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Se
p
Oct
No
v
De
c
2021 2020 2008-2019
Source: CBRT Last Observation: April 22, 2021Source: BIST, CBRT Last Observation: April 22, 2021
CBRT Policy Rate and Short Term Interest Rates (%)
CBRT Open Market Operations (1-Week Moving Average, Billion TL)
14
Monetary Policy
0
100
200
300
400
500
600
700
01
.20
02
.20
04
.20
06
.20
07
.20
09
.20
11
.20
12
.20
02
.21
04
.21
Swap FundingOne Week RepoTraditional Repo3-Month Repo (Targeted Liquidity)PD RepoOvernight LendingLate Liquidity WindowNet Open Market Operations
6
9
12
15
18
210
1.2
0
02
.20
04
.20
06
.20
07
.20
09
.20
11
.20
12
.20
02
.21
04
.21
Interest Rate Corridor
CBRT Average Funding Rate
Average Interest Rate at BIST Excluding the CBRT
1 Week Repo Rate
Source: BloombergSource: Bloomberg
Turkey CDS Premium (Basis Points, 5 YearTerm)
USD/TL Implied FX Volatility (1 Month, %)
* Developing Countries: Brazil, Chile, Colombia, Mexico, Poland, Philippines, Malaysia, South Africa, Indonesia, Romania and Hungary. 15
Financial Indicators
Last Observation: April 23, 2021Last Observation: April 23, 2021
0
100
200
300
400
500
600
700
800
01
.19
04
.19
07
.19
10
.19
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
0
5
10
15
20
25
30
35
40
45
01
.19
04
.19
07
.19
10
.19
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
Emerging Economies*
Turkey
Source: CBRT, TURKSTATSource: TURKSTAT
CPI and B Index (Annual % Change) Contribution to Consumer Inflation (% Points)
* Core Goods: Goods excluding food, energy, alcoholic beverages and tobacco. 16
Consumer Inflation
Last Observation: March 2021Last Observation: March 2021
6
8
10
12
14
16
18
20
22
24
03
.19
06
.19
09
.19
12
.19
03
.20
06
.20
09
.20
12
.20
03
.21
CPI B
0
1
2
3
4
5
6
7
01
.20
02
.20
03
.20
04
.20
05
.20
06
.20
07
.20
08
.20
09
.20
10
.20
11
.20
12
.20
01
.21
02
.21
03
.21
Core Goods* (Including Gold)
Food and Nonalcoholic Beverages
Alcoholic Beverages and Tobacco
Energy
Services
Source: CBRT, TURKSTAT Last Observation: March 2021Source: CBRT, TURKSTAT Last Observation: March 2021
B and C Indices (Seas. Adj., Annualized 3-Month Average %
Change)
Subgroups of B Index(Seas Adj., Annualized 3-Month Average % Change)
* There is no seasonality in the processed food group. 17
Consumer Inflation
4
9
14
19
24
29
09
.19
12
.19
03
.20
06
.20
09
.20
12
.20
03
.21
B (Adjusted for Tax Effect )
C (Adjusted for Tax Effect )
0
5
10
15
20
25
30
35
40
09
.19
12
.19
03
.20
06
.20
09
.20
12
.20
03
.21
Core Goods (Adjusted for Tax Effect)
Services
Processed Food*
THE DETERMINANTS OF INFLATION
Source: CBRT Last Observation: April 2021Source: CBRT Last Observation: March 2021
Output Gap Indicators (%) Net Loan Utilization* (%)
* Net loan utilization is calculated as the ratio of the annual change in the nominal loan stock to the annual GDP of 4 quarters before, and the net loan usage in April 2021 was calculated using the 12-month net loan change until April 2021. The historical average covers the period 2006–2019.
19
Output Gap
-16
-12
-8
-4
0
4
8
03
.17
09
.17
03
.18
09
.18
03
.19
09
.19
03
.20
09
.20
03
.21
Sectoral Kalman (Aggregate)
Kalman (Disaggregated) Survey Based
Credit Augmented 4-Block Bayesian
-2
0
2
4
6
8
10
12
06
.11
06
.12
06
.13
06
.14
06
.15
06
.16
06
.17
06
.18
06
.19
06
.20
06
.21
Consumer (Inc. Credit Card)
Firm (AER)
Consumer Average
Firm Average
Source: Bloomberg, Goldman Sachs Last Observation: April 26, 2021Source: CBRT Last Observation: March 2021
Contribution of Exchange Rate to CPI (% Point)
International Commodity Prices(January 2020=100)
20
ImportCosts
25
50
75
100
125
150
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
Brent Oil Metal Agriculture
-4
-2
0
2
4
6
8
10
12
-20
0
20
40
60
80
100
03
.16
09
.16
03
.17
09
.17
03
.18
09
.18
03
.19
09
.19
03
.20
09
.20
03
.21
Exchange Rate Basket (Annual % Change)
Exchange Rate Effect on the Annual Inflation (% Point,
Left Axis)
Source: IHS Markit Last Observation: March 2021Source: IHS Markit Last Observation: March 2021
Manufacturing Selected Subgroups
*The lower values of the series indicate a longer delivery time. 21
SupplyConstraints: Delivery Times
25
30
35
40
45
50
55
03
.16
09
.16
03
.17
09
.17
03
.18
09
.18
03
.19
09
.19
03
.20
09
.20
03
.21
PMI Suppliers' Delivery Times* (Seasonally Adjusted)
10
20
30
40
50
60
Fo
od
Te
xti
les
Clo
thin
g a
nd
Le
ath
er
Wo
od
& P
ap
er
Ch
em
ica
ls
Min
era
l P
rod
uct
s
Ba
sic
Me
tals
Ma
chin
ery
& M
eta
l P
r.
Ele
ctro
nic
& E
lect
rica
l
Eq
uip
me
nt
La
nd
& S
ea
Ve
hic
les
Mar.21Shortest
Longest
Source: Bloomberg Last Observation: April 26, 2021Source: CBRT Last Observation: April 2021
Consumer Inflation Expectations* (%) Inflation Compensation** (%, 5-Day Moving Average)
*Data from the CBRT Survey of Expectations responded by the representatives of the real and financial sectors and professionals.
**Calculated by the yield spread between nominal and inflation-indexed Treasury bonds with same maturities.
22
InflationExpectations
4
6
8
10
12
14
16
04
.19
07
.19
10
.19
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
12 Months 24 Months
5 Years 10 Years
6
8
10
12
14
16
18
20
22
01
.19
04
.19
07
.19
10
.19
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
10-Year Inflation Compensation
2-Year Inflation Compensation
MEDIUM TERM PROJECTIONS
Source: CBRT, TURKSTAT Last Observation: February 2021Source: Bloomberg, CBRT Last Observation: March 2021
Revisions to Oil Price Assumptions* (USD/Barrel)
Revisions to Import Price Assumptions* (Index, 2015=100)
*Shaded area shows the forecast period.
**The import price series presented in January IR has been updated to 2015 = 100 in line with the revision.
Assumptionsfor ExternalVariables
24
85
90
95
100
105
110
115
03
.19
09
.19
03
.20
09
.20
03
.21
09
.21
03
.22
Apr-21 Jan-21
10
30
50
70
90
03
.19
09
.19
03
.20
09
.20
03
.21
09
.21
03
.22
Apr-21 Jan-21
Revisions in Assumptions
January IR April IR
Output Gap(%)
2020 Q4 2.8 2.5
2021 Q1 1.3 2.3
Food Prices (Year-end % Change)
2021 11.5 13.0
2022 9.4 9.8
Import Prices(USD, Average Annual % Change)
2021 6.5 13.3
2022 0.3 -0.5
Oil Prices(Average, USD)
2021 54.4 64.4
2022 52.1 61.9
Export-Weighted Global Production Index(Average Annual % Change)
2021 4.7 4.4
2022 4.3 4.4
25
Source: CBRT, TURKSTAT
Accordingly, inflation is expected to be
Inflation and Output Gap Forecasts* (%)
* Shaded region indicates the 70 percent confidence interval for the forecast.26
Between 10.0% and 14.4% (with a mid-point of 12.2%) at end-2021
Between 5.0% and 7.5% (with a mid-point of 7.5%) at end-2022
with 70% probability.
InflationOutlook
12,2
7,5
5,0
-6
-2
2
6
10
14
18
22
03
.20
06
.20
09
.20
12
.20
03
.21
06
.21
09
.21
12
.21
03
.22
06
.22
09
.22
12
.22
03
.23
06
.23
09
.23
12
.23
03
.24
Forecast Range Uncertainty Band
Inflation Targets Output Gap
Year-end Inflation Forecast (Mid-point)
Control Horizon
Source: CBRT, TURKSTAT
Accounting of the revision in 2021 year-end inflation forecasts relative to previous Report:
Inflation and Output Gap Forecasts* (%)
* Shaded region indicates the 70 percent confidence interval for the forecast.
27
+1.8 points from TL denominated import price,
+0.4 points fromoutput gap,
+0.4 points fromrevision in food inflation,
+0.1 points from administered prices,
+0.1 points from the rise in underlying trend of inflation and initial conditions.
InflationOutlook
12,2
7,5
5,0
-6
-2
2
6
10
14
18
22
03
.20
06
.20
09
.20
12
.20
03
.21
06
.21
09
.21
12
.21
03
.22
06
.22
09
.22
12
.22
03
.23
06
.23
09
.23
12
.23
03
.24
Forecast Range Uncertainty Band
Inflation Targets Output Gap
Year-end Inflation Forecast (Mid-point)
Control Horizon
Source: CBRT, TURKSTAT
Accounting of the revision in 2022 year-end inflation forecasts relative to previous Report:
Inflation and Output Gap Forecasts* (%)
* Shaded region indicates the 70 percent confidence interval for the forecast.28
+0.3 points from TL denominated import price,
-0,2 points fromoutput gap,
+0.1 points fromrevision in food inflation,
+0.3 points from the rise in underlying trend of inflation and initial conditions.
InflationOutlook
12,2
7,5
5,0
-6
-2
2
6
10
14
18
22
03
.20
06
.20
09
.20
12
.20
03
.21
06
.21
09
.21
12
.21
03
.22
06
.22
09
.22
12
.22
03
.23
06
.23
09
.23
12
.23
03
.24
Forecast Range Uncertainty Band
Inflation Targets Output Gap
Year-end Inflation Forecast (Mid-point)
Control Horizon
Demand and cost-side effects remain significant for inflation given credit market and economic activity indicators, as well as exchange rate volatility and developments in import prices.
Despite the constraining effect of the pandemic, domestic economic activity is strong, led by domestic and external demand.
Notwithstanding the rise in exports and the fall in gold imports, strong domestic demand and commodity prices continue to adversely affect the current account balance.
While commercial loans exhibit a moderate course, an upward trend is observed in consumer loan growth despite tightening financial conditions.
The decelerating impact of the current monetary stance on credit and domestic demand is envisaged to become more significant in the upcoming period.
The policy rate will continue to be determined at a level above realized and expected inflation to maintain a strong disinflationary effect until strong indicators point to a permanent fall in inflation and the medium-term 5% target is reached.
The tight monetary stance will serve as a significant buffer against external and temporary volatilities in the context of inflation expectations, pricing behavior and financial market developments.
The stability in the general price level will foster macroeconomic stability and financial stabilitythrough the fall in country risk premium, reversal in currency substitution, accumulation of foreign exchange reserves and perpetual decline in financing costs.
This would create a viable foundation for investment, production and employment to continue growing in a healthy and sustainable way.
Overview
29
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