Turkey: Inflation moderates in June restoring confidence in the Central Bank
July 4, 2011
In June, consumer prices dropped 1.4% over the previous month, which almost doubled the 0.8% contraction expected by market analysts. The monthly reading contrasted the pronounced 2.4% increase in May and exceeded the 0.6% drop tallied in June 2010. As a result, annual inflation stepped down a full percentage point from 7.2% in May ? which represented a six month-high ? to 6.2% in June. The monthly drop reflected plunging prices for food and non-alcoholic beverages, which were down 6.4% month-on-month. Meanwhile, the core inflation index, which excludes more volatile categories such as unprocessed food and energy, rose 0.6% over the previous month, driving annual core inflation to 5.3% (May: 4.8%). The sharper?than-expected drop should restore some confidence in the Central Bank's unorthodox policy mix after May's inflation surge raised doubts in the effectiveness of its strategy. At its latest monetary policy meeting on 23 June, the Bank decided to keep the key policy rate and the reserve requirement ratio unchanged, as was widely expected by market analysts. In the accompanying statement, the Bank reiterated its conviction to maintain the current policy mix. The Central Bank forecasts inflation to finish at 6.9% this year and to end 2012 at 5.2%. However, the official year-end inflation target remains at 5.5% this year and slightly lower at 5.0% for 2012.