Turkish Central Bank: Tax hikes to push inflation up 0.5pct.

By bne IntelliNews January 6, 2014

Tax hikes in January are expected to add around 0.5% to the headline inflation under the assumption that producer prices do not change, the Central Bank of Turkey said on Monday in a note on the December inflation.

However, companies’ pricing behaviour will be decisive in how tax hikes are reflected to final prices, the Central Bank said, adding that core inflation indicators have followed a downward trend. The Central Bank did not provide any forecast for the January inflation.

Recent tax hikes will add 0.51% to the headline inflation, finance minister Mehmet Simsek said last week. Tax hike on cars will add 0.29% to inflation, the tax increase on cigarettes will add another 0.18% and the hike on alcoholic drink will push inflation up by 0.04%, according to the minister. However, analysts have suggested that tax hikes may add as much as 1% to inflation.

The government missed the inflation target last year. Consumer prices increased 0.46% m/m (market consensus forecast: 0.42% m/m) in December. This brought the annual rate of inflation to 7.40% from 7.32% in the previous month. The government’s inflation target for 2013 was 5% and this year’s target is also 5%. The Central Bank’s favourite core inflation indicator, the I-index (which excludes the prices of energy, food & non-alcoholic beverages, alcoholic beverages, tobacco products and gold) fell 0.11% m/m for an annualised rate of 7.08% in December. The I-index had increased 0.63% m/m in November and 1.78% m/m in October.

Participants of the Central Bank’s latest expectations survey (December) said that they had expected consumer prices to rise 0.68% m/m in January. CPI inflation expectations for 2014 remained unchanged at 6.74% but participants revised their inflation forecast for end-2015 to 6.37% from a previous 6.28%.

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