Turkey: Inflation trends lower in February; month-on-month figure surprises to the upside
Consumer prices rose 0.73% from the previous month in February, below the 1.02% increase recorded in the previous month but above market expectations of a 0.50% month-on-month increase. The stronger-than-expected figure reflected higher prices for food and non-alcoholic drinks, particularly in the meat and dairy product categories. Medicine prices also rose markedly in the month, while clothing prices were the only category to log a decrease from the previous month in February. The increase in transport prices was also weaker compared with January, reflecting stable global energy prices and a firmer lira.
Despite the robust month-on-month increase, inflation moderated marginally in February on the back of a notable base effect. Inflation came in at 10.3% in February, below the 10.4% figure recorded in January and the lowest figure in seven months. The deceleration in the headline figure is, however, proving slower than initially expected, with higher food and furnishing inflation offsetting a base effect set to expire in April. Core inflation was similarly sticky, easing slightly to 11.9% in February from 12.2% in January due to lower core goods prices.
February’s missed market expectations should not alter the Central Bank’s rate decision at its monetary policy meeting on 7 March. Three consecutive months of moderating year-on-year price changes should prevent a meaningful deterioration in inflation expectations—which are backward-looking in nature—giving monetary authorities some room to maneuver in the short-term and allowing them to rebuild policy credibility. Against this backdrop, the Bank is expected to retain its cautious rhetoric in the upcoming meeting, signaling that it stands ready to tighten monetary conditions further to prevent any major downturn on the inflation front.