Turkey: Inflation cools to near three-year low in October due to a supportive base effect
November 4, 2019
Consumer prices in Turkey rose 2.00% month-on-month in October, more than doubling the 0.99% increase recorded in September. October’s result came on the back of strong price increases for housing and utilities; food and non-alcoholic beverages; transportation; and clothing and footwear.
Inflation, meanwhile, eased further from 9.3% in September to 8.6% in October, a near three-year low. The print marked the second consecutive month of below 10% inflation owing to meek domestic demand, a more stable currency and a supportive base effect— inflation rose to 25.2% in the corresponding month last year due to the currency crisis—offsetting electricity and fuel price hikes. Although the recent print provides further room for the Central Bank to further cut its interest rate, inflation is widely expected to rise again in the remainder of this year as the base effects become less strong. The Central Bank expects inflation to end this year at 10.0%, however analysts at Goldman Sachs are slightly less upbeat and “expect inflation yoy to start increasing once again” due to less supportive base effects and to “reach +11% yoy by end of the year.” Yarkin Cebeci, analyst at JPMorgan, added that “inflation will likely stay in double-digits until the last quarter of 2020.”
Lastly, core inflation, which excludes volatile price items such as energy and food, dropped from 7.5% in September to 6.7% in October, while annual average inflation moderated from 18.3% to 16.8%.
Looking ahead, next year’s inflation outlook remains clouded in upside risks due to potential currency volatility induced by the government’s renewed focus on lifting economic growth as set out in its new economic program. Moreover, the analysts at Goldman Sachs added that they “think that the authorities will prioritize growth over lowering inflation” and that “this push for growth creates risks of Lira volatility and higher inflation rates, alongside the fall in real rate buffers.”
Author: Jan Lammersen, Economist