May 2022 CPI Analysis

May 2022 CPI figure was expected to increase by at least 4%, however the rate that was announced very low when compared to the economic reality made me think indeed.

On June 1st, retail prices were announced in Istanbul, which is the leading indicator for CPI. Accordingly, an annual price rise of 87.35% was calculated for May. Historically, 87.35% has been the highest increase since 1998. In May 2022, price in Istanbul have further gone up by 5.84%. If the CPI figures were announced close to this percentage, I would have said, “The 60% year-end inflation expectation in the CBRT surveys has become more tangible.” Well, it did not happen, and now we are faced with a rate far below expectations.

No matter how low the CPI turns out to be, developments are constantly pushing the timing forward for inflation to hit its peak level and take a downward turn. Inflation rate should be 2% or less in the upcoming months so that the base effect can work.

“TurkStat May Beat the Odds”

Let’s make a simple calculation: May inflation was announced around 2.9% and the 5-month inflation rate reached 36%. You can make a fun calculation by entering the possible inflation rates of the following months on an Excel sheet.

According to the result, to even meet the rate in the expectations survey of the Central Bank, 2% monthly average inflation has to be announced. Not an easy task to accomplish, but it looks like TurkStat will beat the odds. Joking aside, next year, inflation should maintain a similar course so that we can finish 2023 with a year-end inflation rate below 30%, which is possible, but the constant financing of the market and exchange rate movements make it difficult to reach this goal.

Under the circumstances, issuing an inflation-indexed security becomes more and more difficult. Because both the amount of interest to be paid increases with the inflation as investors’ expectations and confidence rapidly deteriorate.