Consumer prices rose by 0.4% m/m in August (Anadolu Agency survey: 0.16% m/m, Reuters survey: 0.11% m/m), bringing the annual inflation rate to 7.14% from 6.81% in July, data of the statistics office showed on September 3.

Food prices increased by 1.31% m/m adding 0.33 percentage points to monthly headline inflation, but clothing prices fell by 4.32% m/m shaving off 0.33 percentage points. The increase in food prices was 0.28% m/m in July. Transport costs declined 0.38% m/m, education increased 1.41% adding 0.44 percentage points, hotel & cafe prices rose 2.05% m/m contributing another 0.15 percentage points to the headline inflation.

The core inflation, measured by the central bank’s favourite I-index (which excludes the prices of food, alcoholic beverages, tobacco products and gold), exhibited a 0.24% m/m increase in August after rising 0.11% m/m in the previous month. Consequently, the annual core inflation accelerated to 7.66% from 7.31%.

The central bank has warned that exchange rate movements delay the improvement in the core indicators and the latest data showed the adverse effects of the depreciation of the local currency on prices. TRY is expected to remain under pressure given the ongoing political uncertainty and heightened security concerns as well as geopolitical risks. In a recent report Morgan Stanley argued that currency depreciation is likely to damage the inflation outlook in the last quarter of the year. In line with this, the investment bank increased its year-end CPI expectation to 8.0% from 7.6%.

Data of TUIK also showed that domestic producer prices, which fell 0.32% m/m in July, increased 0.98% m/m in August. The annual rise in domestic prices accelerated to 6.21% from 5.62%.