Turkey Raises Inflation Forecast to 28%

Turkey’s central bank raised its end-2026 inflation forecast from 26% to 28%, acknowledging that price pressures are easing more slowly than previously projected. The 2026 interim target remains at 24% and the policy rate at 37%. Annual consumer inflation declined to 31.75% in July, but underlying measures are still close to 30%, while the latest August survey of market participants puts the year-end inflation expectation at 29.43%. The gaps between current inflation, the central-bank forecast, the interim target and the 5% medium-term objective leave limited room for rapid monetary easing.

Turkey raises its end-2026 inflation forecast

The Central Bank of the Republic of Türkiye presented its third Inflation Report of 2026 on August 13 and raised its point forecast for year-end consumer inflation to 28% from the 26% projected in May. Bloomberg’s report highlighted the central policy message: a weaker near-term inflation outlook has not led policymakers to abandon restrictive monetary conditions. The official report confirms the main figures.

The end-2027 forecast remains at 15% and the end-2028 projection at 9%. Inflation is then expected to converge toward the 5% medium-term target. Interim targets were also retained at 24% for 2026, 15% for 2027 and 9% for 2028.

The bank therefore expects actual inflation to finish 2026 four percentage points above its interim target. In May, policymakers had already raised the 2026 interim target from 16% to 24% and the year-end point forecast to 26%. This time the target was left unchanged while the forecast was raised again.

Why the 28% forecast differs from the 24% target

The two figures have different functions. The 28% figure is the central bank’s current point forecast for actual inflation at the end of 2026. The 24% figure is an interim policy target used to guide the degree of monetary tightness required along the disinflation path.

The higher forecast therefore does not amount to an automatic increase in the policy target. The bank has said it will maintain the monetary tightness required to bring inflation onto a path consistent with its interim objectives.

That distinction is important for markets because a higher inflation forecast does not necessarily point to earlier rate cuts. A larger gap between realized inflation and the interim target can instead strengthen the case for keeping financial conditions restrictive.

Diesel, gas and food drive the revision

Higher expected import costs were among the main reasons for the change. The assumption for dollar-denominated import-price growth in 2026 was raised from 6.3% to 6.9%, while the year-end food-inflation assumption was increased from 26.3% to 28.5%.

The average oil-price assumption for 2026 was actually lowered to $87.8 a barrel from $89.4. The 2027 assumption was raised to $76.4 from $75.4, while expected weighted growth across Türkiye’s 110 main export markets was reduced to 1.6% from 1.7% for 2026.

The revision reflects the outlook for diesel, natural gas, refinery margins and other commodities as well as changes in the fuel-tax smoothing mechanism, food-price assumptions and administered prices.

The distinction matters because a lower average crude-oil assumption does not automatically imply lower domestic energy inflation. Refining costs, logistics, taxes, exchange rates and prices for specific fuels can move differently from the crude benchmark.

Inflation eases to 31.75% as monthly pressure accelerates

Consumer prices increased 1.78% in July from the previous month and 31.75% from a year earlier. Prices were 19.86% higher than at the end of 2025, while the twelve-month moving-average increase was 31.90%.

Annual inflation declined from 32.11% in June. Monthly inflation, however, accelerated from 0.99% in June to 1.78% in July. Falling year-on-year inflation therefore does not mean that fresh price pressure is declining at the same pace every month.

Base effects are part of the explanation because annual inflation compares prices with the same month a year earlier, while monthly inflation provides a more immediate indication of current pricing momentum.

Food and housing remain major inflation pressures

Food and non-alcoholic beverages were 37.53% more expensive than a year earlier in July. Transportation prices increased 30.83%, while housing, water, electricity, gas and other fuels rose 40.32%.

On a monthly basis, food prices increased 1.61%, transportation 2.59% and housing and utilities 2.25%. Their respective contributions to monthly headline inflation were 0.40, 0.44 and 0.27 percentage point.

Persistent increases in essential household costs matter for inflation expectations because consumers encounter them frequently and may incorporate them into wage demands and future spending decisions.

Underlying inflation remains close to 30%

The CPI measure excluding unprocessed food, energy, alcoholic beverages, tobacco and gold increased 30.98% year on year and 1.66% month on month. A narrower measure that also excludes all food and non-alcoholic beverages rose 29.91% annually and 1.80% during July.

These measures provide a clearer view of persistent inflation by reducing the influence of volatile energy and food prices. Their level near 30% shows that Türkiye’s inflation problem extends far beyond fuel and groceries.

The central bank nevertheless sees some improvement in the underlying inflation trend in July, supporting its expectation that tight financial conditions and weaker demand should gradually reduce price pressure.

The policy rate remains at 37%

At its July 23 meeting, the Monetary Policy Committee kept the one-week repo auction rate at 37%. The overnight lending rate remains at 40% and the overnight borrowing rate at 35.5%.

A repurchase agreement, or repo, is a short-term liquidity transaction backed by securities. The one-week repo auction rate serves as Türkiye’s official policy rate.

Policymakers said monetary conditions would remain sufficiently restrictive until price stability is achieved. The stance can be tightened further in the event of a significant and persistent deterioration in the inflation outlook, with decisions taken meeting by meeting on the basis of realized inflation, expectations and the underlying trend.

Effective bank funding costs remain near 40%

The headline 37% policy rate does not fully describe current monetary conditions. At the end of July, the central bank’s weighted average cost of funding was about 40% as liquidity continued to be supplied near the upper end of the interest-rate corridor.

Average commercial-loan rates were around 40.8%, consumer-loan rates about 49.8%, and one-to-three-month deposit rates approximately 39.8% on a four-week average basis as of July 31.

Financial conditions for businesses and households are therefore tighter than the official 37% policy rate alone would suggest.

Weak domestic demand is supporting disinflation

Second-quarter data indicate further weakening in domestic demand. Card spending declined from the first quarter, retail indicators softened and July information suggests subdued spending continued into the third quarter.

The estimated output gap remains negative. This measure compares actual economic activity with the level the economy could sustain without generating additional inflation. A negative gap implies demand is below potential supply and should gradually ease pricing pressure.

Credit growth has also slowed. By the end of July, the 13-week annualized growth rate of total loans adjusted for exchange-rate effects was around 24.6%, well below earlier levels.

Economic growth almost stalled quarter on quarter

Türkiye’s gross domestic product expanded 2.5% year on year in the first quarter of 2026 but only 0.1% from the previous quarter after seasonal and calendar adjustment.

Household consumption rose 4.8% year on year, government consumption increased 2.1% and gross fixed capital formation gained 3%. Industrial value added contracted 0.8%, while construction grew 3.2% and real-estate activity 3%.

Exports of goods and services fell 12.7%, while imports declined 2%. GDP at current prices reached almost TRY17 trillion, equivalent to about $389.6 billion. Second-quarter GDP is scheduled for release on August 31.

The combination of high inflation and near-zero quarterly growth illustrates the policy trade-off: weaker demand helps reduce inflation but prolonged expensive credit can increasingly weigh on investment and economic activity.

August market expectations put inflation at 29.43%

A newer survey became available after the previous version of this article. The August Survey of Market Participants, conducted on August 10–12, puts average end-2026 inflation expectations at 29.43%, replacing July’s 29.21% reading as the latest available market measure.

The central bank’s new 28% forecast is therefore about 1.4 percentage points below market expectations, while the 24% interim target is almost 5.5 points below the consensus.

Twelve-month-ahead inflation expectations stand at 23.69%, 24-month expectations at 18.03% and five-year expectations at 11.14%. Even the long-term market expectation remains more than twice the official 5% target.

Markets are already pricing gradual rate cuts

The same August survey shows that participants do not expect the 37% rate to remain unchanged indefinitely. The average forecast is 37% for the next policy meeting, 36.13% for the following meeting and 35.25% for the third. The end-2026 expectation is also 35.25%.

Participants expect a policy rate of about 29.59% twelve months ahead and 26.34% at the end of 2027. These are private-sector expectations rather than commitments from the central bank.

The market is therefore pricing gradual monetary easing while still expecting borrowing costs to remain exceptionally high.

The 2027 growth forecast falls to 4%

The August survey keeps the market’s 2026 GDP growth forecast at 3.1%. The 2027 expectation has edged down to 4.0% from 4.1% in July.

Participants expect the dollar to trade at about TRY51.6567 at the end of 2026 and TRY57.4278 twelve months ahead. Those figures are market expectations, not an official exchange-rate forecast.

Expected further lira depreciation remains an inflation risk because Türkiye imports substantial volumes of energy, raw materials, machinery and intermediate goods.

Producer prices are still rising by almost 28%

Türkiye’s domestic producer price index increased 1.52% in July and 27.83% from a year earlier. The measure tracks prices received by domestic producers and provides an indication of cost pressure before it reaches consumers.

Producer inflation close to 28% means businesses continue to face significant increases in input costs. If higher energy, raw-material, imported-component, wage and financing costs cannot be absorbed through productivity gains or lower margins, some of the pressure can eventually be passed on to consumers.

Housing rises in lira terms but falls in real terms

Türkiye’s Residential Property Price Index increased 2.0% in June and 24.5% from a year earlier in nominal terms. Adjusted for consumer inflation, however, residential prices were 5.8% lower year on year.

Nominal prices increased 25.3% in Istanbul, 25.5% in Ankara and 22.6% in Izmir. The New Tenant Rent Index rose 29.2% nationwide, including increases of 33.4% in Istanbul, 30.7% in Ankara and 28.4% in Izmir.

For investors, the distinction is critical: a higher property price in lira does not necessarily mean an increase in purchasing power. Returns need to be assessed after inflation, exchange-rate movements and financing costs.

Housing sales rise while foreign demand remains below 2025 levels

A total of 129,979 homes were sold in June, 15.8% more than a year earlier. New-home sales increased 23.1% to 43,406 and existing-home transactions rose 12.5% to 86,573. Mortgaged sales jumped 72.1% to 25,993.

Sales in January through June totaled 699,516 homes, 3.1% below the same period of 2025. Mortgaged sales over the six months, however, were 32.2% higher.

Foreign buyers purchased 2,015 homes in June, up 20.1% year on year, but first-half sales to foreigners fell 9.2% to 9,083 units. Russian citizens were the largest foreign buyer group in June with 381 purchases, followed by Ukrainian and Iranian citizens with 170 each.

The June rebound therefore does not yet amount to a full recovery in foreign demand.

The 5% inflation target remains distant

The official path requires inflation to fall from July’s 31.75% to 28% at the end of 2026, then to 15% in 2027 and 9% in 2028 before eventually converging toward the 5% medium-term target.

Even if the official scenario is achieved, inflation at the end of 2028 would still be almost twice the medium-term objective. A transition from today’s highly restrictive financial conditions to more normal borrowing costs is therefore likely to be gradual.

The principal risks remain energy and food shocks, lira depreciation, persistent service inflation, elevated expectations and the possibility that domestic demand recovers faster than policymakers intend.

As International Investment experts report, raising the 2026 forecast from 26% to 28% does not by itself mean Türkiye’s disinflation program has failed, but it confirms that progress is slower and more vulnerable to external shocks than policymakers expected in the spring. The most important gap is now between the 24% interim target, the 28% official forecast and the latest market expectation of 29.43%. If inflation finishes the year closer to the market estimate, room for rapid rate cuts will remain limited. Premature easing could renew pressure on the lira and inflation expectations, while keeping borrowing costs high for longer will continue to restrict investment and domestic demand. For property investors, the likely result is continued nominal price growth in lira alongside much weaker real returns after inflation and currency movements are taken into account.