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Goldman Sachs Expect Base Effects and Electricity Tariff Cuts to Drive Disinflation

TURKEY
  • Goldman Sachs expect headline inflation to decline from +50.5% y/y to +44.5% y/y on Wednesday mostly on base effects and the recent tariff cuts to electricity and gas prices. They expect core inflation to decline from +47.4% y/y to +45.0%.
  • Electricity tariffs and the price cap on the free market were both cut by 15%, while gas prices for industrial users and power plants were cut by close to 20%. Goldman Sachs expect a 0.5-0.6pp direct downside impact from the tariff cuts on headline inflation.
  • The biggest uncertainty around their forecast for April comes from food inflation. Although global food inflation is showing further signs of a slowdown, the situation in Turkey is complicated by the earthquake, which impacted food prices to a greater degree.
  • While Goldman Sachs expect headline inflation to average +40.0% in 2023, there is more uncertainty around the disinflation path after April and onwards, reflecting possible FX volatility. With monetary and fiscal policy having been loosened significantly YTD, any disinflation below current sequential rates is likely to be slow and potential FX volatility biases the risks to the upside.
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