The Central Bank of the Republic of Türkiye (CBRT) raised its 2026 year-end inflation forecast to 29.5% on Thursday, up from the 28% projected in August, citing persistent energy and shipping costs driven by the war involving Iran and broader Middle East tensions.
Presenting the year's fourth and final inflation report in İstanbul, CBRT Governor Fatih Karahan also announced substantial upward revisions to the bank's medium-term trajectory. The year-end projection for 2027 was lifted by 6 percentage points to 21%, while the 2028 forecast was raised by 4.5 percentage points to 13.5%.
"Supply-side shocks caused by geopolitical developments are limiting the decline in headline inflation," Karahan said during the briefing. "The continuation of this situation keeps upside risks to the inflation outlook alive and calls for a cautious policy stance."
Strait of Hormuz disruptions and energy costs
According to the central bank, fading expectations for a normalization of energy shipments through the Strait of Hormuz—a critical maritime chokepoint in the Persian Gulf—and escalating regional conflict have pushed crude oil and natural gas prices higher since September. Restrictions on trade routes, longer transit times and higher maritime insurance premiums have also driven up freight rates and import costs.
Reflecting these pressures, the CBRT revised several key macroeconomic assumptions underlying its outlook:
- 2026 inflation forecast: 29.5% (up from 28% in August)
- 2027 inflation forecast: 21% (up from 15%)
- 2028 inflation forecast: 13.5% (up from 9%)
- Average oil price assumptions: $97.20 per barrel for 2026 (up from $87.80) and $86.70 for 2027 (up from $76.40)
- Food inflation projections: 31.3% for 2026 (up from 28.5%) and 24% for 2027 (up from 19%), driven by elevated energy, transport and agricultural commodity expenses
The central bank kept its 2029 year-end projection unchanged at 9% and maintained its long-term target of stabilizing inflation at 5%.
Divergence between headline and underlying inflation
The updated projections follow October figures from the Turkish Statistical Institute (TurkStat), Türkiye's state statistics agency, which showed annual consumer inflation edging up to 29.77% from a near five-year low of 29.73% in September. Monthly consumer prices rose 2.58% in October, accelerating from 1.84% the previous month.
Energy was the only major expenditure group in which annual inflation rose compared with the previous year, reaching 51.4% in October. Central bank data show energy prices have climbed 43% since February, compared with a 17% increase in underlying inflation over the same period.
Despite the headline upward revisions, Karahan emphasized that the underlying inflation trend is improving as domestic demand slows and services inflation eases. Monthly underlying inflation dropped to 1.8% in the third quarter, while the annualized underlying rate fell to 23.7% in October—approximately 6 percentage points below the headline consumer price index.
Economists at Dutch banking group ING noted in an analysis of the report that the 29.5% forecast aligns closely with current market expectations of 29.6%. ING analysts stated that Karahan's focus on improving underlying indicators reinforces market expectations that the central bank will continue easing interest rates with a 100-basis-point cut in December, while maintaining tight credit growth limits that have slowed total loan growth from 35% in February to roughly 20%.
