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The Central Bank of the Republic of Türkiye revised its inflation outlook upward across multiple years during a press conference on Thursday as Governor Fatih Karahan presented the final Inflation Report of 2026. The bank lifted its year-end 2026 forecast to 29.5 percent from the 28 percent projected in August while raising the 2027 figure to 21 percent from 15 percent and the 2028 estimate to 13.5 percent from 9 percent. Karahan said the adjustments reflect persistent supply-side shocks from geopolitical developments that continue to limit declines in headline inflation and keep upside risks elevated. The bank left its 2029 projection unchanged at 9 percent before inflation converges toward the medium-term target of 5 percent.
According to the central bank’s assessment higher oil prices driven by tensions around the Strait of Hormuz and disruptions to energy shipments contributed directly to the revisions along with elevated natural gas costs and increased transport expenses. Karahan told the news conference that the bank also raised its assumptions for import prices and food inflation with the latter moving to 31.3 percent for 2026 from 28.5 percent and to 24 percent for 2027 from 19 percent. The governor noted that leading indicators point to continued rises in vegetable prices through November adding further pressure on the food category which has shown elevated levels since the early part of the year.
Fatih Karahan stated supply-side shocks caused by geopolitical developments are limiting the decline in headline inflation and that the continuation of this situation keeps upside risks to the inflation outlook alive and calls for a cautious policy stance. He added that while services inflation has continued to decelerate overall divergences exist across subgroups with communications and transport categories rising more than anticipated due to energy costs. The central bank maintained that underlying inflation trends are improving with demand-sensitive components showing the impact of restrictive policy according to its multivariate indicators.
Annual consumer inflation stood at 29.8 percent in October according to official data released prior to the report while energy group inflation climbed to 51.4 percent marking the only main expenditure category to increase from the previous year. The Central Bank of the Republic of Türkiye lowered its policy rate by 100 basis points to 36 percent at the October Monetary Policy Committee meeting after normalizing its framework in August. Karahan reiterated that the bank would keep monetary policy tight until price stability is achieved even as it monitors the benign trend in underlying inflation that could support further measured easing.
Turkey has faced double-digit inflation since 2019 with rates peaking at 85 percent in late 2022 after an earlier period of unorthodox rate cuts that weakened the lira and triggered a cost-of-living crisis according to historical economic assessments. The reversal toward tighter policy under President Recep Tayyip Erdogan allowed the central bank to hike rates aggressively before beginning a gradual easing cycle that has now incorporated the latest geopolitical adjustments. The bank’s report highlighted that growth lost momentum in the second quarter primarily due to weaker domestic demand while warning that prolonged uncertainty from regional conflicts remains the leading risk factor for further oil price increases.
In addition to the forecast changes the Central Bank of the Republic of Türkiye updated its medium-term plan assumptions to account for higher refinery margins and longer transit times that have pushed freight costs upward. Karahan said recent data show the underlying inflation trend is improving clearly with importance attached to the slowdown in services inflation particularly in previously rigid items. The governor indicated the bank stands ready to adjust its stance if significant deviations emerge from the interim targets of 21 percent by end-2027 13.5 percent by end-2028 and 9 percent by end-2029.
