Turkey’s annual inflation eases to 10.26% in February but fails to impress pundits

Turkey’s annual inflation eases to 10.26% in February but fails to impress pundits
By bne IntelliNews March 5, 2018

Turkey’s annual consumer price inflation came in at 10.26% for February, the lowest level recorded since July last year but a disappointment to analysts who hoped for something more impressive. The latest headline figure was put out by national statistics office TUIK on March 5.

Consumer prices increased by 0.73% m/m last month, beating even the higher 0.33%-0.65% band of market expectation determined by a Reuters poll.

“Disappointing number - there was hope that favourable base period effects would take the headline number into single digits,” Tim Ash, an analyst at Bluebay Asset Management, said in an e-mailed comment. He added: “Core inflation also rose and remains elevated at 11.94%. Worth just remembering that the CBRT [Turkish central bank] target is still 5%.”

“Inflation should begin to edge down in the next few months, but it will remain far above the central bank’s target,” William Jackson of Capital Economics said in his response to the latest figures.

Capital Economics expects the central bank’s monetary policy committee (MPC) to leave all of its key interest rates unchanged when it meets on March 7. It also anticipates that the average cost of liquidity provision – the best measure of overall monetary conditions – will remain at its current level of 12.75% over the course of this year.

Annual inflation eased from the 14-year high of 12.98% in November last year to 11.92% in December due to base effects. In the first two months of 2018, the base effects continued. 

Volatile food prices rose by 2.24% m/m, bringing annual food inflation to 10.27% in February from 8.76% in January.

The annual rise in the C-index, one of the central bank’s favourite core inflation indicators, slowed to 11.94% in February from 12.18% in January.

The C-index touched 12.30% in December, the highest level posted since January 2004 when the index was first compiled.

TUIK also reported on March 5 that domestic producer prices rose 2.68% in February after increasing 0.99% m/m in the previous month. This brought the annual increase to 13.71% in February from 12.14% in January, the lowest level since December 2016.

Annual producer price inflation hit 17.30% last November, the highest level since July 2008.

Turkish President Tayyip Erdogan on February 1 met central bank governor Murat Cetinkaya and state bank officials to discuss steps to reduce interest rates and attract investment.

Turkey’s central bank raised its end-2018 consumer price inflation forecast to 7.9% in January from the previous estimate of 7%.

Moody’s expects the inflation rate will rise to 12.2% at end-2018 from 11.9% at end-2017.

Expectations for Turkey's end-2018 inflation slightly declined to 9.52% in February from 9.55% in Januarythe central bank’s regular survey of businesses and analysts showed on February 15.

In its latest monetary policy committee (MPC) meeting held on January 18, the central bank of Turkey, battling double-digit inflation and a fluctuating Turkish lira while facing criticism that it was not doing enough to address an overheating economy, kept its one-week repo (8%), overnight lending (9.25%) and borrowing (7.25%) rates on hold. It also opted to keep its late liquidity window lending rate unchanged at 12.75%.