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BRIEFING ON 2021-IIIINFLATION REPORT
Prof. Dr. Şahap KavcıoğluGovernor
July 29, 2021
Ankara
Outline Macroeconomic Outlook
The Determinants of Inflation
Medium Term Projections
MACROECONOMIC OUTLOOK
Source: Consensus Economics, World Bank Last Observation: July 2021Source: IHS Markit Last Observation: June 2021
Global PMI Indices 2021 Growth Forecasts of Turkey’s Main Trading Partners* (%)
* Countries are listed according to the size of their share in Turkey's exports. World Bank estimates is used for Iraq and UAE, comparison is made for January-June. 4
Global Growth
20
30
40
50
60
01
.19
04
.19
07
.19
10
.19
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
Manufacturing Services
0
2
4
6
8
10
Ge
rma
ny
UK
US
Ira
q
Ita
lia
Fra
nce
Sp
ain
Ne
de
rla
nd
s
Isra
el
Ru
ssia
Ro
ma
nia
Be
lgiu
m
Po
lan
d
Ch
ina
UA
E
April July
Source: Bloomberg, CBRT Last Observation: July 2021Source: Bloomberg, CBRT Last Observation: June 2021
Global Consumer Inflation* (%) Global 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, Poland, Indonesia, South Africa, Thailand, Czechia, Colombia, Hungary, Romania, Philippines.
Global Inflation andPolicy Rates
5
0
2
4
6
8
10
12
07
.08
07
.09
07
.10
07
.11
07
.12
07
.13
07
.14
07
.15
07
.16
07
.17
07
.18
07
.19
07
.20
07
.21
Advanced Countries Developing Countries
-2
0
2
4
6
8
10
06
.08
06
.09
06
.10
06
.11
06
.12
06
.13
06
.14
06
.15
06
.16
06
.17
06
.18
06
.19
06
.20
06
.21
Advanced Countries Developing Countries
Source: CBRT, EPFR Last Observation: July 9, 2021Source: IIF Last Observation: July 19, 2021
.
Portfolio Flows to Emerging Economies (BillionUSD, 4-Week Moving Average)
Portfolio Flows to Turkey and Emerging Economies* (4-Week Cumulative, Billion USD)
* Turkey data includes portfolio flows to stocks and GDDS market. Repo is included in the GDDS data. Emerging Markets data is taken from the EPFR database and includes all the database-covered funds' weekly net investments in equity and GDDS markets in emerging economies. 6
Portfolio Flows
-4
-3
-2
-1
0
1
2
04
.19
05
.19
07
.19
09
.19
11
.19
01
.20
02
.20
04
.20
06
.20
08
.20
10
.20
11
.20
01
.21
03
.21
05
.21
07
.21
Bond Equity (Excl. China) Equity (China)
-80
-60
-40
-20
0
20
40
60
80
-4
-3
-2
-1
0
1
2
3
4
03
.19
05
.19
07
.19
09
.19
11
.19
01
.20
03
.20
05
.20
07
.20
09
.20
11
.20
01
.21
03
.21
05
.21
07
.21
Turkey (Left Axis) EM
Source: CBRT, TURKSTAT Last Observation: 2021 Q1Source: TURKSTAT Last Observation: 2021 Q1
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
1.7
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 1
2016 2017 2018 2019 2020 21
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
2017 2018 2019 2020 21
Private Consumption Investments
Public Consumption Net Exports
Change in Inventories* GDP
Source: CBRT, TURKSTAT Last Observation: May 2021Source: TURKSTAT Last Observation: May 2021
Industrial Production Index (Seasonally and Calendar Adjusted, 2015=100)
Industrial Turnover Indices (Seasonally and Calendar Adjusted, Real, 2015=100)
8
Economic Activity
* Average of April and May.
80
90
100
110
120
130
140
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2*
2017 2018 2019 2020 21
80
90
100
110
120
130
140
150
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2*
2017 2018 2019 2020 21
Domestic Non-Domestic
Source: Our World in Data Last Observation: July 27, 2021Source: Our World in Data Last Observation: July 27, 2021
Daily Vaccination of Turkey(Amount of Doses, Millions)
Share of People Who Received at Least One Dose of Vaccine* (% of Total Population)
9
Vaccinationand EconomicNormalization
* This may not be equal to the share that are fully vaccinated if the vaccine requires two doses.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
01
.21
02
.21
03
.21
04
.21
05
.21
06
.21
07
.21
Daily Vaccination
Daily Vaccination (7-Day Moving Average)
Overall Average
Average (Last 7 Days)
Turkey
Brazil
Indonesia
Europe
United
States
United
Kingdom
0
10
20
30
40
50
60
70
80
01
.21
02
.21
03
.21
04
.21
05
.21
06
.21
07
.21
Source: CBRT, TURKSTAT Last Observation: July 2021Source: CBRT Last Observation: June 2021
Expenditures on Domestic Cards (Seasonally and Calendar Adjusted, Real, February
2020=100)
Sectoral Confidence Indices (SeasonallyAdjusted)
10
Opening-Upand EconomicNormalization
0
20
40
60
80
100
120
140
02
.20
04
.20
06
.20
08
.20
10
.20
12
.20
02
.21
04
.21
06
.21
Total
Goods
Services (Most Affected from Pandemic)
Services (Others)
40
60
80
100
120
50
70
90
110
130
07
.19
10
.19
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
07
.21
Services Retail Trade
Manufacturing Construction
Source: TURKSTATSource: TURKSTAT
Total and Nonfarm Employment (Seasonally Adjusted, Millions)
Unemployment and Labor Force ParticipationRates (Seasonally Adjusted, %)
* Average of April and May. 11
Labor Market
Last Observation: May 2021Last Observation: May 2021
20
21
22
23
24
25
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 4 12*
2015 2016 2017 2018 2019 2020 21
Th
ou
san
ds
Employment Nonfarm Employment (Left Axis)
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 2*
2017 2018 2019 2020 21
Labor Force Participation Rate (Left Axis)
Unemployment Rate
Nonfarm Unemployment Rate
Source: CBRT, MoT, TURKSTATSource: CBRT, TEA, TURKSTAT
Exports* (Billion USD, Seasonally andCalender Adjusted)
Imports* (Billion USD, Seasonally andCalender Adjusted)
* June data are provisional. 12
ExternalBalance
Last Observation: June 2021Last Observation: June 2021
8
10
12
14
16
18
20
06
.18
12
.18
06
.19
12
.19
06
.20
12
.20
06
.21
Exports Exports (Excluding Gold)
8
12
16
20
24
06
.18
12
.18
06
.19
12
.19
06
.20
12
.20
06
.21
Imports
Imports (Excluding Gold)
Imports (Excluding Gold & Energy)
Source: CBRTSource: CBRT, TURKSTAT
Foreign Trade Volume Indices (SeasonallyAdjusted, 2015=100)
Current Account Balance (12 Month Cumulative, Billion USD)
* Average of April and May. 13
ExternalBalance
Last Observation: Mayıs 2021Last Observation: Mayıs 2021
-60
-40
-20
0
20
40
60
05
.17
09
.17
01
.18
05
.18
09
.18
01
.19
05
.19
09
.19
01
.20
05
.20
09
.20
01
.21
05
.21
CAB
CAB (Exc. Gold)
CAB (Exc. Gold and Energy)
80
90
100
110
120
80
100
120
140
160
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2*
2017 2018 2019 2020 2021
Exports (Exc. Gold) Imports (Exc. Gold, Left Axis)
Source: CBRTSource: CBRT
14
Credit Developments
Last Observation: July 9, 2021Last Observation: July 9, 2021
0
50
100
150
200
250
-20
-10
0
10
20
30
40
50
60
12
.20
01
.21
02
.21
03
.21
04
.21
05
.21
06
.21
Commercial Housing
Personal Automobile (Left Axis)
-20
0
20
40
60
80
100
Jan
Fe
b
Ma
r
Ap
r
Ma
y
Jun
Jul
Au
g
Se
p
Oct
No
v
De
c
2021 2020 (2008-2019)
Loan Growth (Annualized 4-Week MovingAverage, Adjusted for Exchange Rate, %)
Loan Growth by Types of Loans (Annualized 4-Week Moving Average, Adjusted for Exchange
Rate, %)
Source: CBRT Last Observation: July 19, 2021Source: BIST, CBRT Last Observation: July 19, 2021
CBRT Policy Rate and Short Term Interest Rates (%)
CBRT Open Market and Swap Operations (1-Week Moving Average, Billion TL)
15
Monetary Policy
6
9
12
15
18
21
01
.20
03
.20
05
.20
07
.20
09
.20
11
.20
01
.21
03
.21
05
.21
07
.21
Interest Rate Corridor
CBRT Average Funding Rate
Average Interest Rate at BIST Excluding the CBRT
1 Week Repo Rate
0
100
200
300
400
500
600
700
01
.20
03
.20
05
.20
07
.20
09
.20
11
.20
01
.21
03
.21
05
.21
07
.21
Swap FundingOne Week RepoTraditional Repo3-Month Repo (Targeted Liquidity)PD RepoOvernight LendingLate Liquidity WindowNet Open Market Operations
Source: BloombergSource: Bloomberg
Turkey and Developing Country* Risk Premiums (CDS, Basis Points, 5 Year Term)
USD/TL Implied FX Volatility (1 Month, %)
* Emerging Economies: Brazil, Chile, Colombia, Mexico, Philippines, Malaysia, South Africa, Indonesia and Russia.
** Emerging Economies: Brazil, Chile, Colombia, Mexico, Poland, Philippines, Malaysia, South Africa, Indonesia, Romania and Hungary.
16
Financial Indicators
Last Observation: July 26, 2021Last Observation: July 26, 2021
0
200
400
600
800
03
.19
07
.19
11
.19
03
.20
07
.20
11
.20
03
.21
07
.21
Turkey EM Average
0
15
30
45
01
.19
04
.19
07
.19
10
.19
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
07
.21
Emerging Economies**
Turkey
Source: CBRT, TURKSTATSource: TURKSTAT
CPI and B Index* (Annual % Change) Contribution to Consumer Inflation (% Points)
* CPI excluding unprocessed food, alcoholic beverages and tobacco products and gold. 17
Consumer Inflation
Last Observation: June 2021Last Observation: June 2021
6
10
14
18
22
03
.19
06
.19
09
.19
12
.19
03
.20
06
.20
09
.20
12
.20
03
.21
06
.21
CPI B
0
1
2
3
4
5
6
7
8
03
.20
06
.20
09
.20
12
.20
03
.21
06
.21
Core Goods (Including Gold)
Food and Nonalcoholic Beverages
Alcoholic Beverages and Tobacco
Energy
Services
Source: CBRT, TURKSTAT Last Observation: June 2021Source: CBRT, TURKSTAT Last Observation: June 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. 18
Consumer Inflation
4
9
14
19
24
29
12
.19
03
.20
06
.20
09
.20
12
.20
03
.21
06
.21
B (Adjusted for Tax Effect )
C (Adjusted for Tax Effect )
0
5
10
15
20
25
30
35
40
12
.19
03
.20
06
.20
09
.20
12
.20
03
.21
06
.21
Core Goods (Adjusted for Tax Effect)
Services
Processed Food*
THE DETERMINANTS OF INFLATION
Source: CBRT Last Observation: 2021 Q2Source: CBRT Last Observation: 2021 Q1
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. The historical average covers the period 2006 Q1 – 2021 Q2.
20
Output Gap
-2
0
2
4
6
8
10
12
06
.16
12
.16
06
.17
12
.17
06
.18
12
.18
06
.19
12
.19
06
.20
12
.20
06
.21
Consumer (Including Credit Cards)
Corporate (AER)
Consumer Average
Corporate Average
-16
-12
-8
-4
0
4
8
06
.16
12
.16
06
.17
12
.17
06
.18
12
.18
06
.19
12
.19
06
.20
12
.20
06
.21
Sectoral Kalman (Aggregate)
Kalman (Disaggregated) Survey Based
Credit Augmented 4-Block Bayesian
Source: World Bank Last Observation: June 2021Source: CBRT, TURKSTAT Last Observation: June 2021
Contribution of Exchange Rate to CPI (% Point)
Commodity Price Indices(Quarterly % Change)
* USD and euro are equally weighted. 21
ImportCosts
-3
0
3
6
9
12
15
-20
0
20
40
60
80
100
06
.17
12
.17
06
.18
12
.18
06
.19
12
.19
06
.20
12
.20
06
.21
Exchange Rate Basket* (Annual % Change)
Exchange Rate Effect on Annual Inflation (% Point, Left Axis)
-50
-40
-30
-20
-10
0
10
20
30
40
50
-20
-15
-10
-5
0
5
10
15
20
06
.19
12
.19
06
.20
12
.20
06
.21
Energy (Left Axis) Ind. Metals Agriculture
Source: IHS Markit Last Observation: June 2021Source: Bloomberg Last Observation: June 2021
International Transportation Costs (USD) PMI Suppliers' Delivery Times****(Manufacturing, Seasonally Adjusted)
* It is derived from the weighted average of spot and contract freight costs by volume for transportation from Chinese container ports.
** It is obtained from the weighted average of the Capesize, Panamax and Supramax dry cargo freight forward contracts by volume-contract size.
*** Freight cost of 40 ft container weighted by trade volume on 8 shipping routes.
**** The lower values of the series indicate a longer delivery time.
22
SupplyConstraints
25
30
35
40
45
50
55
06
.12
06
.13
06
.14
06
.15
06
.16
06
.17
06
.18
06
.19
06
.20
06
.21
0
2000
4000
6000
8000
10000
0
1000
2000
3000
4000
06
.12
06
.13
06
.14
06
.15
06
.16
06
.17
06
.18
06
.19
06
.20
06
.21
China Containerized Freight Index*
Breakwave Dry Freight Futures Index**
Drewry World Container Index*** (Left Axis)
Source: Bloomberg Last Observation: July 27, 2021Source: CBRT Last Observation: July 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. 5Y5Y inflation compensation is a measure of expected inflation over a five-year period starting five years from now.
23
InflationExpectations
4
6
8
10
12
14
16
07
.19
10
.19
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
07
.21
12 Months 24 Months 5 Years 10 Years
6
9
12
15
18
21
04
.19
07
.19
10
.19
01
.20
04
.20
07
.20
10
.20
01
.21
04
.21
07
.21
Implied 5Y5Y Inflation 5-Year
MEDIUM TERM PROJECTIONS
Source: CBRT, TURKSTAT Last Observation: May 2021Source: Bloomberg, CBRT Last Observation: June 2021
Revisions to Oil Price Assumptions* (USD/Barrel)
Revisions to Import Price Assumptions* (Index, 2015=100)
* Shaded area shows the forecast period.
Assumptionsfor ExternalVariables
25
85
90
95
100
105
110
115
06
.19
12
.19
06
.20
12
.20
06
.21
12
.21
06
.22
Jul-21 Apr-21
20
40
60
80
06
.19
12
.19
06
.20
12
.20
06
.21
12
.21
06
.22
Jul-21 Apr-21
Revisions in Assumptions
April IR July IR
Output Gap(%)
2021 Q1 2.3 2.1
2021 Q2 0.8 0.8
Food Prices (Year-end % Change)
2021 13.0 15.0
2022 9.8 10.1
Import Prices(USD, Average Annual % Change)
2021 13.3 16.3
2022 -0.5 0.2
Oil Prices(Average, USD)
2021 64.4 69.6
2022 61.9 69.4
Export-Weighted Global Production Index(Average Annual % Change)
2021 4.4 4.8
2022 4.4 4.5
26
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.27
Between 12.2% and 16.0% (with a mid-point of 14.1%) at end-2021
Between 5.4% and 10.2% (with a mid-point of 7.8%) at end-2022
with 70% probability.
InflationOutlook
14.1
7.8
5.0
-6
-3
0
3
6
9
12
15
18
21
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
06
.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.28
+0.8 points from TL denominated import price,
+0.1 points fromoutput gap,
+0.5 points fromrevision in food inflation,
+0.3 points from administered prices,
+0.2 points from the rise in underlying trend of inflation.
InflationOutlook
14.1
7.8
5.0
-6
-3
0
3
6
9
12
15
18
21
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
06
.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.29
+0,1 points fromoutput gap,
+0.1 points fromrevision in food inflation,
+0.1 points from the rise in underlying trend of inflation dueto revision in initialconditions.
InflationOutlook
14.1
7.8
5.0
-6
-3
0
3
6
9
12
15
18
21
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
06
.24
Forecast Range Uncertainty Band
Inflation Targets Output Gap
Year-end Inflation Forecast (Mid-point)
Control Horizon
Domestic economic activity is strong. While domestic demand has slightly decelerated in the second quarter due to pandemic restrictions and the tightening in financial conditions, external demand remains strong.
The acceleration of domestic vaccination rollout facilitates the recovery in services and tourism sectors, which have been adversely affected by the pandemic, and leads to a more balanced composition in economic activity.
The effects of the implemented macroprudential measures will be monitored on personal loans, which recently displayed a rise due to the reopening and deferred demand.
The current account is expected to post a surplus in the rest of the year due to the strong upward trend in exports, and the strong progress in the vaccination program stimulating tourism activities.
In addition to the recent increases in import prices and administered prices, demand conditions, supply constraints in some sectors, possible volatility in inflation during the summer due to the reopening, and high levels of inflation expectations continue to pose risks to the pricing behavior and inflation outlook.
The policy rate will continue to be determined at a level above 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 stability through 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
30
www.tcmb.gov.tr
