Inflation's psychological threshold and expectations

The fact that inflation fell below the psychological threshold of 30 percent in September shows that a more sensitive phase has been entered in the fight against inflation.

Because the target figures for inflation are lower figures.

On the other hand, while it is easier to reduce demand and bring inflation down in the early periods through the base effect, at the point we have reached, reducing inflation is on one hand more difficult and costly, and on the other hand clearly depends on future expectations and confidence.

FUTURE EXPECTATIONS IN INFLATION ARE VERY IMPORTANT

It is clear that the continuation of the decline in inflation and the reduction of rigidities depend on the management of forward-looking expectations.

For this reason, even though inflation has fallen below 30 percent, if the business world and individuals continue to shape their pricing behavior with a higher inflation forecast, there is always the risk that the downward trend in inflation will slow.

Therefore, inflation expectations need to be low across all segments of society.

MONETARY POLICY ROUTE

So, what kind of route will the central bank follow from now on, especially regarding interest rates?

The Central Bank's 100 basis point cut in the policy interest rate last week is a positive step that took place in parallel with the decline in inflation.

While this step creates an expectation that interest rates will fall, it should also be seen as support for breaking the decline in the stock market.

On the other hand, the continuation of tight monetary policy until a permanent improvement is achieved in the main trend of inflation and in expectations, and the continuation of the disinflation process without disrupting the real interest rate balance, stand out as the Central Bank's fundamental objectives.

Therefore, the message is being given by the Central Bank that an early easing is not to be expected.

CONFIDENCE AND PREDICTABILITY

It is clear that the disinflation policy will be the most fundamental policy in 2027, as it was in 2026.

It is indisputable that in the success of the disinflation process and in reaching the targeted inflation figures, not only monetary policy but also the support of fiscal policy, the prices managed/directed by the public, and structural steps that will eliminate rigidities in pricing are indispensable.

What will determine the success of the disinflation process is, of course, the belief of all segments of society in the targets set by the Central Bank—that is, transparency, confidence, and predictability.