Turkey’s annual consumer price inflation accelerated from 10.68% in August to 11.2% in September, national statistics office TUIK reported on October 3.

The TRY was trading at 3.5813 per dollar, up 0.37% d/d, as of 14:15 local time after the data release on October 3.

The latest annual CPI inflation figure is still somewhat short of this year's peak, which came in April when it grew to 11.87%. After that peak, there were four months of declining inflation, taking the rate to 9.79% in July, the first single-digit figure seen since January. However, annual inflation has deteriorated in the past two months, climbing back into the double digits.

Consumer prices increased by 0.65% m/m in September, comparing favourably with market expectations of 0.76% m/m.

Food prices declined by 0.23% m/m while clothing prices rose 0.80% m/m. Transport costs rose by 1.58% m/m and education prices increased by 2.08% m/m in September.

The annual rise in the C-index, one of the central bank’s favourite core inflation indicators, quickened from 10.16% in August to 10.98% in September, the highest annual rise recorded since February 2004.

Domestic producer prices rose 0.24% m/m in September after rising 0.85% in the previous month. This brought the annual increase from 16.34% in August to 16.28% y/y in September.

Commenting on the inflation figures, Turkish President Recep Tayyip Erdogan reiterated once again his unorthodox theory that high interest rates are the main reason preventing a decline in inflation. “This is my claim. If interest rates fall, inflation falls. However, the common understanding is inversely correlated. It’s not [that way though], we've seen it,” said Erdogan.

Fitch expects Turkey’s annual inflation rate to be 9.5% at end-2017 while its forecasts for 2018 and 2019 stand at 8% and 7.8%, respectively.

Double-digit inflation should prevent the central bank from easing monetary policy during 2017, Fitch argued in its Global Economic Outlook report, published on October 2.

“The modest fall in inflation expected in 2018 should allow some scope for easing, which is initially expected to take the form of a change in rates through which the central bank provides funding. The lira remains vulnerable to any changes in global financial market conditions.”

The Turkish government expects inflation to fall from 9.5% this year to 7% next year and to 5% by 2020, according to the updated medium-term economic programme unveiled on September 27.

The inflation outlook is projected to improve gradually starting from the last months of the year, yet the pace and quality of this improvement will be monitored closely, the Turkish central bank said in the minutes of the latest monetary policy committee meeting (MPC), released on September 21.

Despite political pressure for lower rates, Turkey’s central bank on September 14 at its latest MPC meeting did as analysts expected it to do by keeping its key interest rates on hold.

Expectations for Turkey's end-2017 inflation rate increased to 9.72% in September from 9.46% in August, according to the central bank’s regular survey of businesses and analysts, published on September 11.