# Inflation persistence and corporate pricing in Türkiye

Economy Study · Türkiye · Monetary Policy and Financial Conditions

A decline in annual inflation does not mean prices are falling, and it does not establish that firms have returned to stable pricing practices. Companies can continue to revise prices frequently, shorten contract horizons, or index agreements to past inflation while the annual rate declines. Understanding persistence requires examining how costs, expectations, and contractual rules shape the next price decision.

Türkiye's inflation process is particularly sensitive to the interaction among exchange-rate exposure, domestic costs, and backward-looking adjustment. These channels operate at different speeds and affect industries unevenly. The Central Bank of the Republic of Türkiye's Inflation Report 2026-I provides the dated evidence used here. Its observations about late 2025 and January 2026 are not presented as a description of every price movement later in the year.

## The annual rate and the current pricing pace are different measures

An annual inflation rate compares the current price index with its level twelve months earlier. Monthly inflation describes a more recent change. The annual rate can fall when a large earlier increase leaves the comparison window even if current monthly increases remain substantial. That base effect should be separated from a change in current price-setting behavior.

The [CBRT's February 2026 Inflation Report](https://www.tcmb.gov.tr/wps/wcm/connect/71808e2d-4f8b-491f-b05a-74c5571cd388/Inflation%2BReport26i.pdf?CACHEID=ROOTWORKSPACE-71808e2d-4f8b-491f-b05a-74c5571cd388-pPBWuyj&MOD=AJPERES) discusses time-dependent repricing and backward indexation, particularly around the turn of the year. It also reports that expectations and pricing behavior remained risks despite signs of improvement. These observations explain why the assessment uses several indicators rather than one annual headline.

Seasonality matters as well. Some fees, contracts, and wages are adjusted at predictable times, concentrating price changes in particular months. Comparing an unadjusted January rate with an ordinary midyear month can therefore confuse the adjustment calendar with a new underlying trend. Seasonal adjustment and item-level evidence help, but they require methodological care.

A business survey asking about expected price changes adds information about intentions rather than completed transactions. Those intentions can change after costs or demand evolve. Survey expectations, posted prices, and actual sales prices should remain separate observations, even when they move in the same direction.

## Imported inputs create heterogeneous exchange-rate exposure

A depreciation can raise the domestic-currency cost of imported materials, equipment, transport, or licensed technology. The effect on a firm's final price depends on the share of those inputs, existing inventories, contractual terms, and the ability to absorb costs in margins. A currency movement does not pass into every price at the same rate or date.

Export receipts can offset some foreign-currency costs. A manufacturer earning foreign currency may have a different net exposure from a retailer importing finished goods for domestic sale. Debt service adds another layer: a company can have a natural operating hedge while still facing a mismatch at a particular repayment date.

Pricing power determines how much of a cost increase reaches customers. A firm in a competitive market may initially reduce margins, while a supplier with scarce capacity can adjust more quickly. Customers may also resist an increase when their own real incomes are under pressure. The observed price response consequently combines cost exposure with market conditions.

For measurement, the relevant import price must match the input and currency actually used. A broad exchange-rate index is a useful context indicator, but it is not an invoice-level cost series. Commodity prices can move in the opposite direction from the currency, partially offsetting or amplifying the domestic cost change.

## Exhibit: cost pressure and price adjustment need not coincide

Assume a hypothetical company has initial unit revenue of 100 lira, imported-input cost of 30, domestic-input and labor cost of 50, and an operating margin before other items of 20. Suppose imported costs rise 20 percent in lira while the other specified costs remain fixed.

| Assumed unit account | Initial position | No price increase | Price raised by 6% |
|---|---:|---:|---:|
| Revenue | 100 | 100 | 106 |
| Imported inputs | 30 | 36 | 36 |
| Domestic inputs and labor | 50 | 50 | 50 |
| Margin before other items | 20 | 14 | 20 |

A 20 percent increase in imported-input costs creates a 6 percent increase in the total revenue needed to preserve the initial nominal margin. It does not require a 20 percent final-price increase under these assumptions. The example is illustrative, not an estimate for Turkish firms.

Preserving a nominal margin is also different from preserving its purchasing power or percentage of revenue. At a price of 106, the margin of 20 is approximately 18.9 percent of revenue, below the initial 20 percent. A company seeking a constant percentage margin would make a different adjustment. The analyst must identify which commercial rule is being applied.

Actual firms also face changing wages, financing costs, taxes, quantities, and inventories. The calculation isolates one channel so that a measured final-price change is not attributed mechanically to the exchange rate alone.

Invoice timing can create a further gap between costs and observed prices. A Turkish manufacturer may purchase an imported input under an earlier currency rate, hold it in inventory, and sell the finished product after market conditions change. Replacement-cost pricing and historical-cost accounting can then imply different margins. The analyst should identify the convention rather than interpret the difference as inconsistent behavior.

Discounts and payment terms also affect the effective transaction price. A posted list price may remain unchanged while a seller reduces rebates, shortens customer credit, or charges more for delivery. Monitoring only advertised prices would miss part of the adjustment. Evidence on actual receipts and commercial terms can therefore improve the interpretation of corporate pricing alongside the consumer-price index and business surveys.

## Indexation transmits yesterday's inflation into tomorrow's costs

A contract tied to past inflation can increase payments even after current inflation slows. Its effect depends on the index, reference period, reset frequency, and any cap or negotiated adjustment. The amount being indexed also matters: applying a rate to rent, labor compensation, or a service fee produces different direct cost effects.

Backward indexation can provide protection to a recipient whose purchasing power has already declined. It can also prolong adjustment in a disinflation process by carrying earlier price changes into new contracts. These distributional and persistence effects should be recognized together. A statement that indexation is costly does not identify who would bear the loss if it were removed.

Contract horizons influence behavior. When future inflation is uncertain, sellers may prefer shorter agreements, advance payment, or foreign-currency references where permitted. Buyers may increase inventories to avoid expected price rises. These responses can raise working-capital needs and make current demand harder to interpret.

A return to longer, more predictable contracts would provide evidence of improved confidence beyond a lower annual inflation rate. It would not prove that every cost pressure has disappeared, but it would indicate less need to protect transactions through frequent repricing. Such evidence is particularly useful for investment planning.

## Expectations are not uniform across firms and households

A professional forecast, a manufacturer's expected selling price, and a household's expected inflation measure different perspectives. Their horizons and information differ. A convergence in one group does not establish that all participants use the same inflation assumption when negotiating wages or setting prices.

Expectations can respond asymmetrically to salient price increases and decreases. A household may pay particular attention to food or rent, while a producer focuses on imported materials and wages. The aggregate CPI remains important, but individual experience can influence decisions through a different consumption or input basket.

The CBRT report treats expectations as part of the risk assessment. That supports monitoring their distribution and consistency with the disinflation path rather than assuming the announced target alone determines behavior. A target is a policy objective; a survey is an observation of beliefs; realized inflation is an outcome.

For corporate analysis, the useful question is how those beliefs enter contracts, inventory decisions, and price reviews. An expectation that does not affect a firm's decisions has a different practical role from an indexation rule that automatically changes payments. Survey evidence should therefore be linked, where possible, to observed commercial behavior.

## Monetary conditions work through demand and financing

Tighter financing can reduce the ability of buyers to accept higher prices and the willingness of firms to accumulate inventories. It can also increase working-capital costs. The net effect on a particular company's pricing decision depends on its debt structure, collection period, and competitive position.

This is why higher interest costs cannot be assumed to translate one for one into prices. Weak demand may prevent pass-through, reducing margins instead. Conversely, a firm with market power may maintain prices while reducing output. Observing a price alone does not reveal the full adjustment.

Disinflation can improve planning while creating transitional pressures. A company that purchased expensive inventory expecting rapid price increases may face weaker nominal sales growth than anticipated. Debtors and creditors can experience different real burdens as inflation falls. Assessing the business effect requires both operating and balance-sheet information.

## What would demonstrate less persistent pricing?

The evidence would include a sustained reduction in underlying monthly inflation, fewer or smaller price revisions across a broad set of items, improved alignment of expectations, and less reliance on short-horizon or backward-looking contracts. These indicators should be interpreted with the seasonal calendar and changes in administered prices in view.

For firms, longer quotation validity, more predictable input costs, and reduced need for precautionary inventories would provide additional evidence. For workers and households, real income and essential-cost pressures determine how disinflation affects purchasing power. A lower rate of price growth can be beneficial while leaving the level of prices high.

Türkiye's inflation persistence is therefore a process of interacting contracts, costs, and expectations. The dated CBRT evidence supports examining that process rather than treating a single headline decline as complete normalization. A durable improvement requires current pricing decisions to become consistent with lower inflation over time, while the distribution of adjustment across firms, workers, borrowers, and savers remains visible.


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American Economic Senate