Consumer prices rose 1.8% m/m in October, the statistics institute (TUIK) said on Monday. This brought the annual CPI inflation rate to 7.71% from the previous month’s 7.88%. The markets had expected a monthly inflation rate of 1.34%.

Food prices are still volatile and they were one of the main drivers behind the higher-than-expected October inflation. Food prices rose 3.91% m/m in October for an annualised inflation of 11.13%. Clothing prices were up 9.56% m/m due to seasonal factors while transport costs rose 0.34% m/m. The prices of alcoholic beverages & tobacco fell 0.73% but house appliances prices (7.28% share in the CPI basket) registered a 1.58% m/m increase. Communication prices remained unchanged from the previous month.

The core inflation data is worrying. One of the Central Bank’s main core inflation indicators (I-index which excludes the prices of energy, food & non-alcoholic beverages, alcoholic beverages, tobacco products and gold) rose 1.78% m/m in October after rising 0.67% m/m in September. The annual core inflation (measured by the I-index) accelerated to 7.49% from 6.96% in September.

Producer prices rose 0.69% m/m in October, fully in line with market expectations. The annual PPI inflation accelerated to 6.77% from 6.23% in September, TUIK data also showed.

Recall that the Central Bank last week raised its end-2013 inflation forecast to 6.8% from a previous 6.2% and end-2014 forecast to 5.3% from a previous 5% due to exchange rate developments and oil prices. The official inflation target both for 2013 and 2014 is 5%. The recent unfavourable course of unprocessed food prices will be temporary, and prices will gradually be normalized by the year end, the Bank said in its quarterly Inflation Report released last week. The Central Bank expects inflation to plunge in early 2014, and come down to levels consistent with the target by the last quarter of 2014. Exchange rates should be closely watched due to their adverse effects on inflation through energy and input costs.