Consumer prices declined 0.44% m/m in December, comparing favorably with the market consensus forecast of a 0.02% rise, as food inflation remained unchanged and transportation costs dropped in the month, data of the statistics office, TUIK, showed on January 5. The annual inflation decelerated from 9.15% in November to 8.17% in December, lower than market consensus estimate of 8.65%.

The food prices remained unchanged and had no impact on headline inflation in the month while the annual food inflation decelerated from 14.37% in November to 12.73% in December. Clothing prices declined 3.71% m/m in the month, shaving an 0.26 points from headline inflation, while transportation costs fell 1.78% m/m, shaving another 0.27bp. Communication prices were down 0.11% m/m.

The core inflation (measured by the I-index; one of the Central Bank’s favorite indicator) declined 0.38% m/m in December, after a 0.62% m/m increase in the previous month, bringing the annual inflation rate to 8.73% from 9.03% in November. The I-index excludes the prices of energy, food and non-alcoholic beverages, alcoholic beverages and tobacco products and gold.

Domestic producer prices that showed a 0.97% m/m decline in November fell 0.76% m/m further in December, data showed. The annual producer price inflation eased from 8.36% to 6.36% in December.

According to the medium-term programme, the government expected an end-year inflation of 9.4% this year and foresees a 6.3% annual inflation in 2015. The Central Bank said on December 31 in the minutes of the last monetary policy committee (MPC) meeting that inflation will decline in line with the forecast presented in the Inflation Report throughout 2015, at a faster pace in the first half of the year. In the inflation report released in November, the Bank raised its inflation forecasts for 2014 to 8.9% from a previous 7.6% and to 6.1% from a previous 5% for 2015, but voiced optimism that inflation was expected to stabilize around 5% in the medium term. The Bank’s governor Erdem Basci said on December 10 that inflation could come in below the Central Bank’s 8.9% forecast at the end of 2014, adding that he expects inflation to fall sharply in the first four months of 2015.