Central bank chief Karahan explains Turkey’s inflation forecast revision

Fatih Karahan says Turkey’s revised inflation outlook reflects both the carryover from higher-than-target inflation and changing conditions in the global economy.

Speaking after Vice President Cevdet Yılmaz presented the 2027-2029 Medium-Term Program at the Presidential Complex, the Central Bank governor said the latest revision followed the approach outlined in the bank’s most recent inflation report. The report updated the year-end forecast for 2026 while leaving the process for 2027 and later years within the medium-term program.

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Therefore, the revision reflects part of this. Another part actually reflects changing dynamics in the global environment.

Karahan rejected suggestions that the government had announced a target above the Central Bank’s own goal. He said the targets had been set in coordination and that the process would bring stronger coordination, particularly over administered and directed prices.

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We do not regard it as a revision that would cause pessimism about the inflation outlook.

He said inflation running above target for one year could affect subsequent years, while global developments had also changed. Since 2020, he said, the world economy had experienced increasingly frequent and severe supply shocks, beginning with the pandemic and followed by supply-chain disruptions, trade wars and physical wars. He estimated the resulting impact this year at nearly 7 percentage points, including higher energy and transport costs, food prices and pressure on many other goods.

Karahan said war-related pressures had also raised the prices of agricultural inputs, especially fertilizer, as well as durable goods and petrochemical products. He described the revision as substantial but said it should not create a pessimistic view of the inflation outlook. Despite the negative effects of the war, he said monetary policy was producing favorable results in areas it could influence, particularly demand-driven sectors and core goods. Services inflation, however, remained rigid in monthly data.

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Despite the many negative effects of the war, we see that inflation data have been favorable in areas that monetary policy can influence, especially demand-driven areas.