Turkey’s monthly inflation rate rose by 1.02% in March, nearly twice economists’ forecasts for a 0.54% increase in consumer prices.

On the back of the March data, the country’s annual inflation rate accelerated to 11.29%, the highest level registered since October 2008 when the y/y consumer price index hit 11.99%.

Inflation hits double-digits

The lira fell 0.3% to trade at 3.6384 per dollar as of 10:15 local time, following the release of the data.

Food prices were up 1.93% m/m, adding 0.42 percentage points to headline inflation. Clothing prices increased 1.99% m/m in March, adding another 0.15 percentage points.

Transport costs rose by 0.56% m/m in the month while health services prices increased by 1.88% m/m.

The so-called C-index, one of the central bank’s favourite core inflation indicators, increased by 1.25% m/m in March, bringing the annual rise to 9.46%.

The outlook on the domestic producer price front was not any better. Prices in this area were up 1.04% m/m with annual inflation in domestic producer prices shooting to a 9-year high of 16.09% in March.

The question now is how the central bank will respond to the worse-than-expected inflation data. It will meet later this month on April 26 to review its interest rates.

President Recep Tayyip Erdogan just last week renewed his call for substantial rate cuts.

In February, the central bank lifted its end-year inflation forecast for 2017 to 8%, citing the currency's decline and volatile food prices. The bank’s end-year food inflation forecast is 9%.

The March inflation figures are bad news for the government which is seeking to change the country’s constitution in a crucial referendum scheduled for April 16 to establish an executive presidency with sweeping powers.

Bulent Gedikli, one of Erdogan’s aides, downplayed the spike in inflation. “Exchange rates impacted inflation and the upswing in consumer prices is temporary,” said Gedikli on Twitter.

Turkey's CPI Inflation (y/y)
%	Weights-OLD	Dec-15	Sep-16	Oct	Nov	Dec	Weights-2017	Jan-17	Feb-17	Mar-17
Headline	100	8.81	7.28	7.16	7.00	8.53	100.00	9.22	10.13	11.29
Food and non-alcoholic beverages	23.68	10.87	4.16	5.20	3.55	5.65	21.77	7.77	8.72	12.53
Alcoholic beverages and tobacco	4.98	5.68	22.61	22.61	22.61	31.59	5.87	22.90	21.72	21.71
Clothing and footwear	7.43	8.99	7.03	6.07	4.59	3.98	7.33	3.66	6.77	8.52
Housing, utilities	15.93	6.71	6.64	5.53	5.87	6.42	14.85	6.54	7.42	7.71
Furnishings, household equipment	8.02	10.95	7.13	6.28	5.46	6.24	7.72	6.16	4.93	5.33
Health	2.66	7.16	9.65	9.39	9.16	9.73	2.63	12.13	12.53	13.28
Transportation	14.31	6.40	7.54	8.19	9.57	12.36	16.31	15.61	17.96	17.69
Communications	4.42	3.56	3.12	2.80	3.09	3.18	4.12	3.24	4.36	4.47
Recreation and culture	3.81	11.56	3.97	2.42	4.26	5.93	3.62	6.23	7.32	9.30
Education	2.56	6.39	10.37	9.58	9.50	9.47	2.69	9.43	9.33	9.84
Hotels, cafes and restaurants	7.47	13.23	8.31	8.34	8.50	8.62	8.05	8.58	8.66	8.71
Miscellaneous goods and services	4.73	11.00	10.03	9.34	10.92	11.08	5.04	12.74	12.82	12.51
Source: tuik