Turkey: Inflation is stable in March while core inflation continues to ease
Consumer prices in Turkey rose 1.03% month-on-month in March, up from February’s 0.16% increase. March’s print was in line with market expectations and reflected noticeably more expensive food and non-alcoholic beverages, while prices for transportation and housing, water, electricity, gas and other fuels also increased. The steepest increase in prices was observed in health.
Inflation, meanwhile, was unchanged from February at 19.7% in March, the lowest reading since August 2018. Core inflation, which exclude more volatile price items such as energy and food, eased to 17.5% in March from 18.1% in the prior month. Core inflation has been on a downward trend in recent months and is in part linked to plummeting domestic demand.
Looking ahead, Muhammet Mercan, chief Economist at ING Turkey, stated that “exchange rate developments will be watched to assess the inflation outlook, though the current economic backdrop with ongoing weakness in domestic demand will remain supportive [to a continuation of the downtrend]. We shouldn’t rule out [the] likely impact from a marked deterioration in pricing behavior and inflation expectations.”
Yarkin Cebeci, emerging markets analyst at JPMorgan, added that “a relatively weak base and the termination of some tax cuts introduced by the government late last year would be the main factors behind [relatively stable inflation in H1].” However, Cebeci also stated a possible new run on the lira poses a noticeable upside risk to the inflation outlook. In recent weeks, the Turkish lira came under renewed pressure as attested to by the offshore overnight swap rate sky-rocketing prior to local elections on 31 March and Central Bank intervention in the foreign exchange market.