Turkey’s yearly inflation registers in the double digits after five years

Turkey’s yearly inflation registers in the double digits after five years
By bne IntelliNews March 3, 2017

Turkey’s yearly consumer price inflation quickened to 10.13% in February, marking the first double-digit price growth since April 2012’s 11.14%, data from national statistics office TUIK showed on March 3.

The yearly inflation rate, which fell to 7% in November, has been climbing during the last three months in parallel with the country’s struggling currency. Turkish officials had already announced that yearly CPI inflation could reach the double digits in the first quarter of this year. Officials are confident that the currency will stabilise and that inflation will decline during the remainder of the year.

February’s monthly inflation of 0.81% was almost double the 0.47% m/m increase predicted by the market consensus of a Reuters poll. As a result, the Turkish lira was hit hard, jumping from as low as 3.7116 at around 09:20 local time to as high as 3.7466 at around 10:10 local time on March 3. However, the central bank later announced that it was further cutting lira liquidity at its daily auctions in a move which will likely push average funding cost for lenders to above 10.50%, Reuters reported.

Political pressure has been forcing the central bank to apply an unorthodox policy set amid global fluctuations caused by near-daily comments from US President Donald Trump and commentary from the Fed governor Janet Yellen. Meanwhile, the central bank is trying to support the Turkish treasury via purchasing government bonds in the secondary market as it is trying to cut lira liquidity for lenders at the same time.

The lira was trading at 3.7219 against the USD at around 13:00 local time on March 3, down 0.19% d/d, while the BIST-100 index was down 0.23% d/d to 89,729.

Domestic producer price inflation also continues to ring alarm bells. It accelerated to a nine-year high of 15.36% y/y in the month. The last higher peak was July 2008’s 18.41%. Monthly inflation in producer prices, on the other hand, declined to a four-month low of 1.26% in February, confirming esimates in a Markit PMI survey by Markit.

Annual inflation in producer prices fell to as low as 1.78% last September. In the five months since, it has skyrocketed.

Key sub-items of the CPI such as food, housing & utilities and transport costs continued to post significant increases in the second month of 2017. Yearly food inflation quickened to 8.79%, the highest level since July, while prices of alcoholic beverages and tobacco products increased 22% y/y. Reflecting the impact of rising energy prices and the currency's weakness, transport prices also kept to a seven-month-long escalating trend as transport costs inflation quickened to 18% y/y, almost tripling July’s 6.13%. Yearly housing and utilities inflation reached 7.42% in February following the consecutive rising trend seen since October.

Annual clothing prices inflation also almost doubled to 6.77% in February from January’s 3.66% although clothing prices posted a negative monthly inflation rate of 3.35% due to seasonal discounts.

The core inflation outlook was not promising either. One of the main core inflation indicators, the so-called C-index, increased by 0.70% m/m, bringing the annual rise for this item from 7.74% in January to 8.56% in February.

Last month, the country’s central bank lifted its end-year inflation forecast for 2017 to 8%, citing the currency's decline and volatile food prices. The bank upgraded its end-year food inflation forecast to 9% from the previous estimate of 7%.

In February, end-2017 inflation expectations rose to 8.87%. The World Bank is forecasting a quickening of annual inflation to 9% at the end of 2017. The European Commission’s inflation forecasts for 2017 and 2018 are 8%, and 7.6%, respectively.

Turkey's CPI Inflation (y/y)
% Weights-OLD Dec-15 Aug-16 Sep Oct Nov Dec Weights-2017 Jan-17 Feb-17
Headline 100 8.81 8.05 7.28 7.16 7.00 8.53 100.00 9.22 10.13
Food and non-alcoholic beverages 23.68 10.87 6.19 4.16 5.20 3.55 5.65 21.77 7.77 8.72
Alcoholic beverages and tobacco 4.98 5.68 23.03 22.61 22.61 22.61 31.59 5.87 22.90 21.72
Clothing and footwear 7.43 8.99 7.84 7.03 6.07 4.59 3.98 7.33 3.66 6.77
Housing, utilities 15.93 6.71 6.82 6.64 5.53 5.87 6.42 14.85 6.54 7.42
Furnishings, household equipment 8.02 10.95 8.25 7.13 6.28 5.46 6.24 7.72 6.16 4.93
Health 2.66 7.16 10.60 9.65 9.39 9.16 9.73 2.63 12.13 12.53
Transportation 14.31 6.40 6.74 7.54 8.19 9.57 12.36 16.31 15.61 17.96
Communications 4.42 3.56 3.60 3.12 2.80 3.09 3.18 4.12 3.24 4.36
Recreation and culture 3.81 11.56 5.63 3.97 2.42 4.26 5.93 3.62 6.23 7.32
Education 2.56 6.39 9.18 10.37 9.58 9.50 9.47 2.69 9.43 9.33
Hotels, cafes and restaurants 7.47 13.23 8.63 8.31 8.34 8.50 8.62 8.05 8.58 8.66
Miscellaneous goods and services 4.73 11.00 11.84 10.03 9.34 10.92 11.08 5.04 12.74 12.82
Source: tuik

Data

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