This study investigates how financial conditions influence inflation dynamics in Türkiye through distinct transmission channels and how these effects vary across CPI sub-expenditure groups. Using principal component analysis, we construct new financial conditions indices from quarterly data spanning 2011Q1–2025Q1 and propose specific indices for six broad subcategories of drivers: credit costs, asset prices, policy stance, funding availability, external conditions, and the price of risk. The impulse response analyses reveal that financial conditions exert significant short-term influence on inflation, with credit costs and the price of risk generating the strongest and most persistent effects – lasting up to six quarters. Inflation responses vary substantially across expenditure groups: food, transportation, clothing, and housing show higher sensitivity to financial shocks, whereas health, communication, and recreation prices remain largely unresponsive. Our results underscore the need for policymakers to broaden their analytical focus beyond the policy rate to encompass credit pricing and risk perception channels.
PEŞTERE-AKÇAY et al. (Wed,) studied this question.