Country Report Turkey April 2011

Outlook for 2011-15: Inflation

We expect the annual rate of consumer price inflation to accelerate moderately from a 41-year low of 4.2% in February 2011, given base effects and some upward pressure from the impact of low interest rates, a weaker lira and rising commodity prices. That said, we believe that the inflation outlook is fairly benign, as we expect the strong rebound in economic activity to moderate in 2011-15. Our baseline forecast is that end-of-year rates will be slightly over the Central Bank's targets of 5.5% in 2011 and 5% in 2012 and 2013, but within the band of uncertainty of ±2 percentage points. Given our forecast that domestic demand growth will stabilise in 2013-15 and international oil prices will ease slightly, we expect inflation to decline to 4-4.5% in 2014-15.

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