Turkish inflation hits 25 percent in October, highest in 15 years

ISTANBUL (Reuters) – Turkish annual inflation surged to 25 percent in October, official data showed on Monday, hitting its highest in 15 years and underscoring the sustained impact of a currency crisis as the wider economy loses pace.

Month-on-month, consumer prices <TRCPI=ECI> jumped 2.67 percent, the Turkish Statistical Institute data showed, higher than the 2.0 percent forecast in a Reuters poll.

In the wake of a lira slide, the government has cut its growth forecasts and investors say Turkey might record negative GDP growth in the coming quarters, discouraging any central bank move to hike rates in response to high inflation.

“I think the CBRT would be loathed to have to increase policy rates again if the inflation data continues to disappoint as this will just make the recession deeper,” said Timothy Ash, a strategist at Blue Bay Asset Management.

“They will assume, rightly, that deflation and recession will eventually do the trick on inflation. But they need time.”

The lira <TRYTOM=D3> weakened to 5.4740 against the dollar by 0820 GMT from 5.43 beforehand. The currency has recently recovered some losses from a sell-off driven by concerns over central bank ability adequately respond to rising inflation and deteriorating ties with Washington.

Producer prices rose 0.91 percent month-on-month in October for an annual rise of 45.01 percent. Core inflation surged 24.34 annually.

October inflation was driven by a 12.74 percent month-on-month surge in clothing and shoe prices and a 4.15 percent rise in housing prices, the data showed.

RISE IN INFLATION

Last month, Turkey’s central bank left its benchmark interest rate unchanged, after a mammoth hike in September and as tensions with the United States eased, helping to lira gain some ground.

The rise inflation in October means the central bank’s real interest rates – the level once price rises are taken into account – has been pushed further into negative territory, another issue investors have expressed concern about.

In the minutes of its latest rate-setting meeting, the central bank said it would be more sensitive to incoming data in the short run and its policy stance would be revised upon detection of changes in the inflation outlook.

The continued rise in inflation is also likely to raise scepticism about the efficiency of steps taken by the government to tame inflation.

Finance Minister Berat Albayrak announced a “full-fledged fight” against inflation in October, calling on all companies to offer 10-percent discounts on items impacting inflation until year-end.

Last week, he also announced a consumer tax cut to furniture, white goods and motor vehicles, which economists say will trim year-end inflation by around 1 percent.

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