More rate cuts expected as Turkish inflation eases more than expected in August

By bne IntelliNews September 5, 2016

Consumer prices in Turkey increased 8.05% y/y in August, easing from 8.79% a month earlier, statistics office TUIK said on September 5.

The reading was below market expectations for a hike of 8.4%. The sharper-than-expected fall in inflation will likely to be used as justification by the central bank for further rate cuts, analysts suggest. The central bank, CBRT, has been under pressure from politicians to cut its rates to boost domestics demand and economic activity despite inflation staying well below the mid-term target of 5%.

On a monthly basis, prices declined by 0.29% m/m, above the market consensus of 0.15% growth. 

Food prices, declined by 1.92% m/m in August, shaving 0.4 percentage points (pp) off the headline index. The decline followed a 3.15% m/m increase in July. At the same time, clothing prices were down 4.69% m/m shaving another 0.3pp of the headline index. The 3.44% m/m increase in tobacco product prices limited a further decline in the headline inflation, adding 0.15pp.

The central bank’s favourite core inflation indicator, the so-called I-index, fell by 0.02% m/m in August after rising 0.13% m/m in the previous month. The annual core inflation, thus, slowed to 8.41% from 8.7%. The central bank’s inflation forecast for this year is 7.5%.

Domestic producer prices edged up 0.08% m/m, bringing the annual increase down to 3.03% in August from July's 3.96%, TUIK data also showed.

Good numbers, but due to the usual volatility driven by unprocessed food prices, Tim Ash at Nomura said, commenting on the August inflation figures. “In the short term the economy is slowing – as indicated by PMIs and confidence indicators, and we might see this in IP data for August, and Q2 national accounts data due this week,” according to Ash.

“This could help the CBRT build the narrative for further continuing its current rate cutting agenda, but the bank likely needs to be warned that the global environment could still so easily turn negative in October/November around the Fed/US elections, and a Moody's decision still looming.”

Most investors would still prefer a much more cautious line from the CBRT as it moves to “normalise”, according to Ash. “Maybe this data will let the CBRT move more quickly to now unify its policy rates around the average funding rate at around 8%, further cutting the overnight lending rate from 8.5%,” he said.

Analysts at Capital Economics also suggest that the better-than-expected CPI reading in August will be used by policymakers as a justification to lower interest rates further. “For now, we have pencilled in two additional 25bp cuts in the overnight lending rate at the next two Council meetings, which would bring it to 8.0%,” the analysts say. That is despite expectations that inflation will rise again by the end of the year as petrol prices start to make a stronger positive contribution to inflation. “All in all, we expect the headline rate to remain high in 2017, averaging around 8.5%.”

Turkey's CPI Inflation (y/y)
  Weights Dec-15 Jan Feb Mar Apr May Jun Jul Aug
Headline 100 8.81 9.58 8.78 7.46 6.57 6.58 7.64 8.79 8.05
Food and non-alcoholic beverages 23.68 10.87 11.69 8.83 4.58 1.38 2.47 6.63 9.69 6.19
Alcoholic beverages and tobacco 4.98 5.68 11.17 12.78 12.79 12.84 12.79 12.8 19.36 23.03
Clothing and footwear 7.43 8.99 9.31 9.80 9.03 9.32 7.32 7.31 8.26 7.84
Housing, utilities 15.93 6.71 7.33 7.22 6.63 6.59 6.51 6.68 6.69 6.82
Furnishings, household equipment 8.02 10.95 10.75 11.04 11.09 10.38 9.18 9.75 8.21 8.25
Health 2.66 7.16 8.14 9.20 9.43 9.58 9.58 9.81 10.58 10.6
Transportation 14.31 6.4 7.37 6.32 6.19 6.41 5.72 6.45 6.13 6.74
Communications 4.42 3.56 2.64 1.26 1.19 1.77 2.86 3.07 4.49 3.6
Recreation and culture 3.81 11.56 12.05 11.25 9.6 9.16 8.97 5.97 7.31 5.63
Education 2.56 6.39 6.46 6.66 6.94 6.93 7.56 7.82 7.89 9.18
Hotels, cafes and restaurants 7.47 13.23 13.43 13.12 12.26 11.35 10.59 9.95 9.96 8.63
Miscellaneous goods and services 4.73 11.00 11.21 12.00 12.39 11.25 11.87 11.33 12.68 11.84
Source: tuik                    

Related Articles

Fitch says relaunch of Kashagan oilfield is credit positive for Kazakhstan

The relaunch of Kashagan oil field is positive for Kazakhstan’s credit ratings, Fitch Ratings said in a note on October 21. The ratings agency believes ... more

Azerbaijan's largest agri-processing conglomerate eyes London listing

Azersun Holding, the largest agri-processing conglomerate in Azerbaijan, is eyeing a public listing on the Baku and London stock exchanges in the medium term, CEO Savash Uzan told on October ... more

Poland raises €1.25bn and issues first ever 30-year Eurobond as it races the US Fed

Poland sold a total of €1.25bn of euro-denominated Eurobonds maturing in October 2046 and October 2028 on October 18. In an unexpected move - as Warsaw tends to tap markets for Eurobonds early in ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.