Turkey’s better-than-expected inflation figures in May support expectations for more rate cuts

By bne IntelliNews June 3, 2016

A decline in food prices helped consumer prices in Turkey post a smaller-than-expected monthly rise in May, in a move likely to embolden politicians to increase pressure on the central bank to deliver more rate cuts to stimulate the slowing economy.

Inflation came in at 0.58% m/m in May, below market expectations for a 0.78% hike. The annual inflation rate edged up to 6.58% from 6.57% in April data from the statistics office TUIK showed on June 3. 

Food prices were down 1.64% m/m, shaving 0.38pps off  the headline index but clothing prices rose by 8.04% m/m, adding 0.58pps. Housing costs increased 0.38% m/m, and transport prices were up 1.1% m/m.

Teh data also showed a slight improvement in the core inflation. The I-index, one of the central bank’s favourite measure of core inflation, increased 1.36% m/m in May, versus 1.94% m/m in the previous month, bringing the annual rise up to 8.77% from 9.41%. The I-index excludes the prices of food and non-alcoholic beverages, alcoholic beverages and tobacco products and gold. The central bank, CBRT, cautions that despite the fall in inflation, the improvement in the underlying core inflation trend remains limited, necessitating the maintenance of the tight liquidity policy stance.

TUIK also reported that domestic producer prices increased by 1.48% m/m in May, swinging from a 0.52% rise in April. The annual increase in producer prices accelerated to 3.25% from 2.87%.

“As domestic demand does slow on heightened political and security risks. And this does leave scope for the CBRT to ease policy, as central bank governor Murat Cetinkaya has been doing”, Tim Ash at Nomura said in an emailed comment. “The challenge for Cetinkaya will come a little later in is marriage to the CBRT and to global markets, as global risk appetite likely reverses on Brexit, China and US election risk, and this might well create a repeat of the early 2014 scenario where there will be pressure on the CBRT to hike”, Ash said.

The value of the lira was little changed after the inflation data, trading at 2.9500 per dollar at 11:30 local time.

Turkey's CPI Inflation (y/y)
  Weights Oct Nov Dec-15 Jan Feb Mar Apr May
Headline 100 7.58 8.10 8.81 9.58 8.78 7.46 6.57 6.58
Food and non-alcoholic beverages 23.68 8.69 9.51 10.87 11.69 8.83 4.58 1.38 2.47
Alcoholic beverages and tobacco 4.98 5.67 5.67 5.68 11.17 12.78 12.79 12.84 12.79
Clothing and footwear 7.43 5.78 7.06 8.99 9.31 9.80 9.03 9.32 7.32
Housing, utilities 15.93 6.04 6.39 6.71 7.33 7.22 6.63 6.59 6.51
Furnishings, household equipment 8.02 10.72 10.50 10.95 10.75 11.04 11.09 10.38 9.18
Health 2.66 7.11 7.15 7.16 8.14 9.20 9.43 9.58 9.58
Transportation 14.31 4.04 5.11 6.4 7.37 6.32 6.19 6.41 5.72
Communications 4.42 3.18 3.67 3.56 2.64 1.26 1.19 1.77 2.86
Recreation and culture 3.81 10.86 11.74 11.56 12.05 11.25 9.6 9.16 8.97
Education 2.56 6.43 6.35 6.39 6.46 6.66 6.94 6.93 7.56
Hotels, cafes and restaurants 7.47 13.77 13.44 13.23 13.43 13.12 12.26 11.35 10.59
Miscellaneous goods and services 4.73 11.57 11.37 11.00 11.21 12.00 12.39 11.25 11.87
Source: tuik                  

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