Turkey: Inflation surges in May on the weaker lira, putting pressure on the Central Bank to hike rates
June 4, 2018
Consumer prices rose 1.62% from the previous month in May, down slightly from April’s 1.87%. May’s uptick came on the back of significant price rises for clothing and footwear, transportation and food and non-alcoholic beverages.
Inflation picked up pace for the second consecutive month, fueled by the depreciation of the currency and elevated domestic demand, rising to 12.2% in May from 10.9% in April. In addition, core inflation rose sharply, from 12.2% in April to 12.6% in May. Annual average inflation remained at 11.1% in May. Intensifying price pressures are putting pressure on the Central Bank to raise rates at its 7 June meeting, in order to assure markets it is serious about taming inflation and to support the lira.
Looking ahead, inflation is likely to remain high in the short term despite the potential for tighter monetary policy, due to the pass-through effects of the weaker lira and ongoing fiscal stimulus. It should gradually dim later this year but will remain substantially above the Bank’s 5% target over the forecast horizon.
Turkey Inflation Forecast
The Central Bank of the Republic of Turkey raised its inflation forecasts in April, and now expects inflation to end this year at 8.4%, before dipping to 6.5% by end-2019. FocusEconomics panelists are less sanguine, and see inflation closing 2018 at 10.3% and 2019 at 8.8%.
Author: Oliver Reynolds, Economist