Turkey Raises Year-End Inflation Forecast to 28.4%

Vice President Cevdet Yılmaz said the increase was driven largely by the war involving the United States, Israel and Iran, which has pushed up import costs. He said the central bank estimates the conflict is adding almost seven percentage points to inflation, a material hit for an economy that depends heavily on imported energy. The government also raised its 2026 energy import bill forecast to $71 billion from $63 billion and widened its projected foreign trade deficit to $105 billion from $96 billion.

Those numbers tell investors where the pressure is building. Turkey is still wrestling with annual inflation of 31.51% in August, only slightly below July’s pace, while an independent gauge from ENAG put the rate at 49.03%. That gap underscores why markets remain wary of official projections and why credibility is so important in inflation targeting. For long-term investors, the key question is not whether prices will eventually cool, but whether policy can cool them without choking growth.

The government now expects inflation to ease to 21% in 2027, 13.5% in 2028 and 9% in 2029, but it also cut its 2026 growth forecast to 3.3% from 3.8%. That combination is familiar in emerging markets that are trying to re-anchor expectations: slower growth now, more room for stability later. Turkey says it has made “significant progress” since inflation peaked at 75.45% in May 2024, but the latest revision shows how external shocks can still overwhelm domestic tightening.

For investors, that keeps Turkish assets in a delicate position. Higher inflation tends to erode real returns, complicate fixed-income investing and keep policy rates elevated for longer. It also raises the hurdle for companies tied to domestic demand, while exporters and firms with foreign-currency revenue are better placed to absorb the shock.

Turkey’s medium-term plan still points to lower inflation over time, and that is the right direction for patient investors. But with energy costs rising, the trade deficit widening and confidence still fragile, the path back to price stability looks longer and bumpier than Ankara had hoped. For now, Turkey remains a market to watch closely, not to rush.