Bad news: Inflation expectations remain nervous – Commerzbank

Market commentators' inflation forecasts for the end of 2024 have not accelerated in all respects, but in some respects. In other words, they have become nervous again instead of steadily declining in response to the recent (favorable) inflation data, notes Tatha Ghose, FX analyst at Commerzbank.

The political situation is proving to be a negative factor for the lira

“These inflation expectations have consistently been above official forecasts (e.g. those in the CBT Inflation Report). This is worrying because the generally observed year-on-year inflation rate has fallen sharply over the past two years.”

“Historically, expectations have tended to behave adaptively, so it is somewhat odd that there has been no improvement in response. That is, the broader market is seeing through the superficial improvement in inflation that has been achieved so far and is rightly concerned about the underlying trend.”

“At a time when more decisive inflation targeting would be appropriate, the political situation is becoming unfavorable for precisely this initiative. And this is now proving to be another negative factor for the lira.”