Turkey’s annual inflation eased to 7.16% in October from 7.28% a month earlier, data from statistics office showed on November 3.

The reading sees price growth slowing for the third straight month in October raising the question whether the central bank will opt for rate cuts to boost economic activity. The main risk to inflation, however, is the volatile lira, which is one of the worst performing emerging market currencies this year, analysts say.

Inflationary pressures are likely to stay elevated amid carryover effects from last year’s depreciation and monetary easing, the International Monetary Fund (IMF) said in recent report. “The foreign trade deficit and poor tourism revenues data released this week underscored the lira-negative environment. If the Fed raises rates in December, we forecast USD-TRY to rise to 3.20 by the end of the year,” Commerzbank commented in a report on October 31. Against this background of re-widening current-account deficit and unhelpful inflation drivers, the central bank must find a way to support the economy and bank lending, Commerzbank analysts wrote.

On a monthly basis, consumer prices rose 1.44% in October, driven by a sharp 10.4% m/m rise in clothing prices, TUIK data showed. The more volatile food prices were up 1.76% m/m, adding 0.39 percentage points (pp) to the headline figure in October, while the clothing prices’ contribution was a larger 0.73pp.

Transportation costs rose 2% m/m, adding another 0.27pp to the monthly inflation, while housing and communication prices fell 0.24% m/m and 0.06% m/m, respectively.

The I-index, one of the central bank’s favourite core inflation indicator, rose 1.61% in October, up from 0.14% in the previous month. But, the annual increase in the index eased to 7.04% from 7.69%. The I-index excludes the prices of food, non-alcoholic beverages, alcoholic beverages and tobacco products and gold.

TUIK also said domestic producer prices increased by 0.8% m/m in October, after rising 0.29% m/m in the previous month, bringing the annual rise in the component up to 2.84% from 1.78%.

Turkey's CPI Inflation (y/y)
	Weights	Dec-15	Mar-16	Apr	May	Jun	Jul	Aug	Sep	Oct
Headline	100	8.81	7.46	6.57	6.58	7.64	8.79	8.05	7.28	7.16
Food and non-alcoholic beverages	23.68	10.87	4.58	1.38	2.47	6.63	9.69	6.19	4.16	5.20
Alcoholic beverages and tobacco	4.98	5.68	12.79	12.84	12.79	12.80	19.36	23.03	22.61	22.61
Clothing and footwear	7.43	8.99	9.03	9.32	7.32	7.31	8.26	7.84	7.03	6.07
Housing, utilities	15.93	6.71	6.63	6.59	6.51	6.68	6.69	6.82	6.64	5.53
Furnishings, household equipment	8.02	10.95	11.09	10.38	9.18	9.75	8.21	8.25	7.13	6.28
Health	2.66	7.16	9.43	9.58	9.58	9.81	10.58	10.60	9.65	9.39
Transportation	14.31	6.40	6.19	6.41	5.72	6.45	6.13	6.74	7.54	8.19
Communications	4.42	3.56	1.19	1.77	2.86	3.07	4.49	3.60	3.12	2.80
Recreation and culture	3.81	11.56	9.60	9.16	8.97	5.97	7.31	5.63	3.97	2.42
Education	2.56	6.39	6.94	6.93	7.56	7.82	7.89	9.18	10.37	9.58
Hotels, cafes and restaurants	7.47	13.23	12.26	11.35	10.59	9.95	9.96	8.63	8.31	8.34
Miscellaneous goods and services	4.73	11.00	12.39	11.25	11.87	11.33	12.68	11.84	10.03	9.34
Source: tuik