Macro and Politics

* The CBT will release June Real Effective Exchange Rate (REER) today @14:30 local time. Considering the inflation realizations and the average Basket/TRY change for June, we expect the REER to increase merely to 105.7, implying a 0.1% real appreciation of the Turkish lira.

* Monthly CPI inflation came in at 1% in June, in line with our house forecast, while market expectations were also broadly aligned with our estimate. As a result, annual CPI inflation eased from 32.6% to 32.1% in June. Looking at core indicators, monthly increases in Core-B and Core-C inflation moderated to 1.7% and 1.5%, respectively, while annual readings stood at 31.2% and 29.8%. Producer prices, meanwhile, increased by 1.8% on a monthly basis, bringing annual PPI inflation to 28.1%. The moderation observed in headline CPI in June was primarily driven by the reversal of seasonal pricing pressures in the clothing and footwear category, the continued benign trend in food prices, and declining prices in the transportation group. On a monthly basis, the highest price increase in June was recorded in alcoholic beverages and tobacco, which rose by 3.5%. Housing ranked second with a monthly increase of 2.3%, followed by restaurants and hotels, where prices increased by 2.1% over the month. Meanwhile, transportation and clothing & footwear posted monthly declines of 0.05% and 0.2%, respectively, helping to contain overall CPI inflation. We believe the recent correction in energy prices following the ceasefire between the US and Iran could partially alleviate inflationary pressures in the near term. We expect annual CPI inflation to maintain its downward trajectory during the summer months, falling below 30% by September and below 29% by October. While we maintain our 2026 year-end CPI forecast at 28%, we continue to assess risks around our forecast as modestly skewed to the upside, given the recent deterioration in inflation expectations and the lagged effects of cost shocks on pricing behavior.