Şimşek: Service Inflation Rigidity Eases, Disinflation Goal Strengthens

Finance Minister Mehmet Şimşek announced that the rigidity in service inflation has eased, marking a pivotal shift in Turkey’s disinflation drive.

Softening in Service Inflation

Official figures show the service price index slipping to 5.2%, down 0.6 percentage points from the previous 5.8%. Core CPI’s annual rise of 61.3% fell short of market expectations of 63.0%, delivering a ‑0.9 point negative surprise for service inflation.

Policy Discipline Behind the Numbers

■Credit‑card spending caps and rent‑increase ceilings were re‑activated.

■The Central Bank kept its policy rate steady at 8.5% to anchor price stability.

■The 2024‑2025 budget targets include a 2% inflation buffer.

■Public‑sector spending is slated for a 3% efficiency‑driven cut.

Market Reaction & Risk Landscape

■The BIST 100 rallied +1.4%, reflecting optimism around lower inflation forecasts.

■The TRY/USD pair appreciated 0.7%, signaling renewed confidence in the lira.

■Eurobond spreads narrowed by 30 basis points, easing external financing costs.

■Nevertheless, a 4% rise in energy prices and lingering geopolitical tensions keep upside inflation risks alive.

Global Macro Context

The US ISM Manufacturing PMI registered 48.2, hinting at a modest slowdown, while the US NFP added +210k jobs, aligning with expectations. In this environment, Turkey’s service‑inflation easing could act as a buffer against global demand weakness.

Fatih Kılıç – Economic Indicators Lead Data Scientist

The dip in service inflation not only relieves price pressure but also grants the central bank more policy flexibility. Coupled with a softening core CPI and ISM Manufacturing data, we may see a path toward a rate cut in the coming quarter. Still, external shock risks remain elevated, urging a cautious market stance. Anchoring inflation sustainably within the 4‑5% range would bolster both domestic and foreign investor confidence, further compressing FX rates and bond spreads.