Inflation is expected to follow a downward course in the coming months due to a correction in unprocessed food prices and the base effect in energy prices, the Central Bank said in a note on July price developments.
The effects of weak TRY started to be felt in core inflation indicators, the Bank said.
Consumer prices increased by 0.31% m/m in July, bringing the annual inflation rate to 8.88%, highest level since September last year, reflecting the depreciation of TRY and rising oil prices.
Energy prices rose 1.21% m/m (11.3% y/y), unprocessed food inflation was 0.11% m/m (19.35% y/y) in July.
The Central Bank’s end-2013 food inflation projection is 7%.
Transportation costs rose2.28% m/m also reflecting the effects of weak TRY.
The Central Bank argues that inflation would fall back starting from August after peaking around 9% y/y in July.
The Bank recently raised its inflation forecasts for end-2013 to 6.2% from a previous 5.3% and for end-2014 to 5% from a previous 4.9%. The official inflation target for end-2013 is 5%.
Cost push inflation dynamics should be watched carefully. If TRY remains weak and energy prices continues to rise, inflationary pressures are likely to remain in place in the coming months. Domestic demand conditions should also be watched closely.
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