TEBA's Annual Inflation Forecast Drops by 2 Points
In the latest Household Inflation Expectations Survey (TEBA), conducted in Turkey, the annual inflation expectation of households decreased by 2 percentage points to 107% in October compared to the previous month. The results for October, prepared in collaboration with Koç University and KONDA, have been announced.
According to the survey, household year-end inflation expectations also declined by 2 percentage points to 92% in October compared to the previous month. The inflation expectation for the 12-month period until October 2025 remained at 96%.
The statement continued: "TEBA inflation expectations maintained the downward trend observed in September for both annual and year-end inflation expectations in October. The forward-looking inflation expectations for 12 months remained stable compared to the previous month. The average values of inflation expectations are higher than the median values for annual and year-end inflation expectations, indicating that the distribution is right-skewed. This means there are more individuals expecting inflation below 107% than those expecting higher figures. Conversely, for the 12-month forward inflation prediction, the average value is below the median, indicating a left-skewed distribution. In other words, there are fewer individuals expecting inflation below 96% compared to those expecting higher figures.
The interquartile range (IQR) value measures the degree of variance in responses among participants. After the responses to the survey questions were ordered from smallest to largest, this value indicates the points of expectation differences corresponding to the 25th and 75th percentiles. This value has shown a decrease for the 12-month forward inflation expectations, suggesting an increase in consensus regarding inflation predictions.
Factors Shaping Inflation Expectations This month’s survey included a question regarding the criteria participants used to formulate their inflation expectations. It has been observed that the most significant factor influencing expectation formation is the prices experienced by the participants themselves, confirming findings from the September survey. Expectations regarding exchange rate trends also play an important role in shaping inflation expectations, while the influence of comments from economic management has been observed to be more limited. Moreover, the relatively low weight of the public savings issue that has recently been on the agenda is notable, with only 8% of participants mentioning this factor.
How Do Inflation Expectations Affect Consumer Behavior? Another question in the survey provides insight into how inflation expectations influence household behavior. Empirical studies in the economic literature indicate findings in both directions concerning how inflation expectations affect demand. When inflation expectations decline and the anticipation of an increase in real income takes precedence, it has been identified that expenditures on durable goods increase. In contrast, the TEBA survey presents findings that indicate consumer demand is brought forward when inflation expectations increase. A substantial proportion of survey participants reported their behavior preferences as stocking up on non-perishable goods, increasing demand for durable consumer goods, and taking on more debt in anticipation of rising inflation.
This behavior aligns with the expectation of a decrease in real wages accompanying the anticipated rise in inflation. Additionally, the demand being brought forward is consistent with economic theory if the expected increase in inflation also reduces expectations for real returns on savings. Furthermore, it has been observed that when inflation expectations rise, a significant percentage of participants (42%) attempt to maintain their purchasing power against inflationary expectations by using credit cards or making installment payments.