Inflation Declining Due to Base Effect Expected to Rise Again at Year-End
It is stated that annual inflation, which has receded due to the base effect, could rise again due to tax increases and mathematical shifts in November and December.
With monthly inflation realizing at 1.84 percent in August and September, a decline was experienced in annual inflation rates. However, it is assessed that inflation may enter a rising trend again due to the base effect reversing in November and December and projected tax increases.
The Impact of Base Effect on Inflation
The realization of monthly inflation at the level of 1.84 percent in August and September enabled annual inflation rates to recede. Although prices continue to rise regularly every month, this decline is explained in the economy by the base effect.
Expected Changes Towards Year-End
Since inflation was low in November and December of last year, potential increases that may be experienced in the same months this year will pull annual inflation back upward. Following the October inflation to be announced on November 3, the annual rate is expected to recede to around the 28 percent levels.
Rate Cut and Difficult Period
An expectation of a 100 basis point rate cut is expressed in an environment where the policy rate is 37 percent at the Monetary Policy Committee's meeting on October 22. In contrast, November and December stand out as the most challenging phase of the process of combating inflation.
Reflection of Tax Increases on Costs
It is stated that projected gradual SCT and VAT increases on fuel will reflect on supermarket shelves by increasing transportation, production, and distribution costs. This situation may make it difficult for monthly inflation to fall below 1 percent and carry the annual rate back to the 30 percent band.
The Importance of the Trust Element
It is expressed that it is not consistent to attribute success to policies while inflation is falling and hold external developments responsible while it is rising. It is emphasized that the real issue can be resolved not only with interest rates and taxes, but by gaining the trust of society in the economic program.