Earlier this week, TURKSTAT released the inflation data for August. As expected, inflation continued its upward momentum. Meanwhile, this month's figures were slightly below expectations. While the market's monthly inflation expectation was 3.6%, the data came in at 3.08%. Annual inflation also stood at 83.45%.

Inflation has been increasing for the last 16 months. The exit from the pandemic and the rise of food and energy prices to astronomical levels due to the Russia-Ukraine War have had a significant impact on this. We see this effect mostly in the "transportation" bracket. The annual increase there stood at 117.66%. Let's note that the rise in this bracket is mainly due to the increase in gasoline and diesel prices.

The second highest increase in the sub-components of annual inflation is in the food and non-alcoholic beverages group. The annual increase here is 93.05%. The increase in food was due to developments during the pandemic and supply-related problems after the war. Of course, we should not forget the pressure created by the increase in fertilizer prices due to the increase in global energy prices from the cost channel.

D-PPI, that is, the Domestic Producer Price Index, is a price index that measures price changes by comparing the producer prices of products produced in the country's economy in a certain reference period and subject to domestic sales over time. Since there is a certain rate of pass-through from D-PPI to CPI, we follow this data closely.

According to the latest D-PPI data, producer prices were 4.78% monthly and 151.50% annualized in August. Here, we see that the highest increases on both a monthly and annual basis come from the energy group. Electricity, gas, steam, and air conditioning are the sub-sectors with the highest increase in indexes with 416.58%, crude oil and natural gas with 245.7%, and coke and refined petroleum products with 213.90%.

Global trends and domestic developments indicate that the increase in inflation will continue for a while. We will wait for the months when the strong base effect starts for the decrease in inflation. Accordingly, while the optimistic forecast points to December, we will be cautiously waiting for February-March next year.

Of course, there are also very serious risks both internally and globally. The continuation of interest rate hikes by major central banks, especially the Fed, increases the risks from the exchange rate channel. On the other hand, the risks arising from the Russia-Ukraine War on the energy prices side are intensifying. It should not be forgotten that this will also have significant effects on food prices. Of course, let's also note that the supply problems that may arise due to the recession risk, and in this context, the World Bank and the IMF persistently remind us of the possible negative effects of interest rate hikes, especially the Fed, on the global economy.