A surge in food prices pushed Turkey’s annual inflation up to a four-month high in June prompting expectations that the easing cycle might be nearing an end.
Consumer prices rose by 7.64% y/y in June, accelerating from 6.58% in May, data from the statistics office TUIK showed on July 4. The reading exceeded market expectations as analysts were looking for a 6.94% annual hike in a Bloomberg survey. On a monthly basis, prices edged up 0.47% from May, also beating the market consensus of 0.12%.
The main culprit was food prices that increased 1.16% m/m, adding 0.27pps to the headline inflation. Clothing prices were down 1.33% m/m, shaving 0.1pps off the headline inflation, while transport costs increased 0.67%, adding 0.09pps.
The central bank already warned about a possible “correction” in food prices, but the 1.2% increase was probably larger than what analysts had expected. During Ramadan, on the other hand, demand for food products generally increase and this can partially explain the 1.2% food inflation in the month.
The core inflation index, which excludes more volatile food, gold, non-alcoholic beverages and tobacco products, increased 0.24% m/m in June, slowing from the 1.4% rise in the previous month. Annual core inflation, consequently, eased to 8.67% from 8.77%.
TUIK also reported that producer prices rose 0.41% m/m in June, to follow a 1.48% hike in May. The annual increase in producer prices accelerated to 3.41% from 3.25%.
The central bank forecasts consumer inflation to be 7.5% at the end of 2016 and 6.0% in 2017, while the official target is 5%.
The lira lost value against the dollar after the disappointing June inflation data. The local currency was trading at 2.8952 at 10:30am local time versus 2.8891 before June figures were out.
The sharper-than-expected rise in Turkish inflation is limiting the scope of the central bank’s monetary policy committee (MPC) for further rate cuts. “We had pencilled in a further 50bp of cuts in the overnight lending rate. Given pressure from the government to lower rates, we think the MPC might still use the latest fall in core inflation to justify one or two 25bp rate cuts,” analysts at Capital Economics say in a note. “But there’s a growing chance that there will be no further easing.”
|CPI in Turkey|
|Food and non-alcoholic beverages||23.68||9.51||10.87||11.69||8.83||4.58||1.38||2.47||6.63|
|Alcoholic beverages and tobacco||4.98||5.67||5.68||11.17||12.78||12.79||12.84||12.79||12.8|
|Clothing and footwear||7.43||7.06||8.99||9.31||9.8||9.03||9.32||7.32||7.31|
|Furnishings, household equipment||8.02||10.5||10.95||10.75||11.04||11.09||10.38||9.18||9.75|
|Recreation and culture||3.81||11.74||11.56||12.05||11.25||9.6||9.16||8.97||5.97|
|Hotels, cafes and restaurants||7.47||13.44||13.23||13.43||13.12||12.26||11.35||10.59||9.95|
|Miscellaneous goods and services||4.73||11.37||11||11.21||12||12.39||11.25||11.87||11.33|