Turkey: Headline inflation hits six-month low in July
August 3, 2017
Consumer prices rose 0.15% in July compared to the previous month, up swinging from the first monthly decline in almost one year in June (-0.27% month-on-month). According to the Turkish Statistical Institute, the increase was due to higher prices across several categories, with prices for hotels, cafes and restaurants increasing the most and offsetting a sizeable decrease in prices for clothing and footwear.
Conversely, inflation finally eased back down to single digits, coming in at 9.8% in July from 10.9% in June, and marking the weakest reading in six months. The easing was primarily a result of a slowdown in rising prices for food—particularly for fresh fruit and vegetables—and textile prices. Meanwhile transportation prices rose a notable 15.2% in July, contributing to the inflation. Annual average inflation remained steady at 9.4%.
July’s reading comes as a slight relief for the Turkish economy as inflation remains one of Turkey’s most pressing risks, however the easing will most likely be temporary as the base effects from unprocessed foods wear off. Furthermore, despite the drop in inflation, core inflation, which excludes food and energy prices, rose from 9.2% to 9.6%—the highest print since March 2016. The Central Bank has been caught up in a balancing act, trying to balance pressures from President Recep Tayyip Erdogan to keep interest rates low while also managing high inflation risks and a weakening lira. The CBRT has chosen to maintain its rhetoric of a tight monetary policy until inflation risks significantly subside. The Bank also adjusted its year-end inflation forecasts upward from 8.5% to 8.7% for 2017, as stronger-than-expected domestic demand so far this year adds to price pressures.
Author: Lindsey Ice, Economist