Turkey: Inflation edges down in May
June 5, 2017
Consumer prices in Turkey increased 0.45% compared to the previous month in May, the weakest monthly rise since September of last year. The figure was well below both the 1.31% expansion recorded in April and the milder deceleration to a 0.80% increase expected by market analysts. According to the Turkish Statistical Institute, the moderate rise was due to robust price gains for clothing and footwear items, and recreation and culture services.
The pass-through effect of the weakened lira, felt since the end of 2016, is gradually easing on account of the currency’s renewed strength. This, coupled with a benign base effect, allowed inflation to edge down to 11.7% in May after having surged to a near-nine-year high of 11.9% in April. Conversely, annual average inflation accelerated further in May as it rose to 9.1% from April’s 8.7%, marking the highest figure since October 2012.
Barring major surprises, our panel sees May’s headline figure marking the first month of a cyclical slowdown, with inflation now expected for the most part to decelerate in H2 2017. Indeed, the current strength of the lira and a still-positive base effect in June and July will help inflation head lower in the months to come, while the Central Bank’s hawkish tone and tightening stance will counterbalance a weaker lira towards year-end as well as lagged wage-cost pressure. The main downside risk to this outlook stems from the government itself, since the authorities have unleashed ample fiscal and credit stimuli measures that could fuel higher-than-expected demand-pull pressures.
Author: David Ampudia, Economist