Turkey’s annual consumer price inflation accelerated to 10.68% in August from 9.79% in July, national statistics office TUIK reported on September 5.

Consumer prices increased by 0.52% m/m in August versus market expectations for a 0.15% m/m hike.

Food prices declined by 0.22% m/m while clothing prices dropped 3.09% m/m. Transport costs rose by 2.05% m/m adding 0.34 percentage points to headline inflation and education prices increased by 2.79% m/m.

The annual rise in the C-index, one of the central bank’s favourite core inflation indicators, quickened to 10.16% in August from 9.6% in July.

Domestic producer prices rose 0.85% m/m in August after rising 0.72% in the previous month. This brought the annual increase to 16.34% from 15.45% y/y in July.

“An uptick in inflation was expected this month, but the extent of the increases I will think will surprise negatively,” Timothy Ash, senior sovereign strategist at BlueBay Asset Management, wrote in an emailed note on September 5.

“The assumption was that inflation would begin to ease back to year end, due to tax changes, but it will now be from a higher level. This leaves very little scope for the central bank to ease its current hawkish monetary policy stance - keeping the average funding rate up at around 12% - any time soon,” he added.

This monetary policy keeps the Turkish lira well anchored around the 3.5 level against the dollar, and is helping to solidify confidence indicators, according to Ash.

The TRY was trading at 3.4451 per dollar as of 10:30 local time after the data release on September 5.

“Consumer confidence indicators are also showing strength more generally - no doubt helped by the success of the credit guarantee programme, albeit now declining in effect/scope,” Ash added.