Turkish inflation jumps above policy rate to 19.25%

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ISTANBUL – Turkish annual inflation jumped more than expected to 19.25% in August, above the central bank’s policy rateand its highest level in more than two years, according to data released on Friday, maintaining pressure for tight monetary policy.

Month-on-month consumer price rises were also surprisingly hot at 1.12%, the Turkish Statistical Institute said, compared to a Reuters poll forecast of 0.6%. On an annual basis, the poll forecast inflation of 18.7%.

The central bank has held its policy rate at 19% since March and repeatedly promised in recent months to keep it above the inflation rate.

However, on conference calls with investors on Wednesday, investors told Reuters that Bank Governor Sahap Kavcioglu did not repeat that hawkish pledge, and said they interpreted that as a shift that could pave the way to earlier rate cuts.

Monetary easing is expected to begin in the fourth quarter in part due to pressure for stimulus from President Tayyip Erdogan. Inflation has been driven higher due to commodities, post-lockdown consumer demand and lira depreciation that has kept import prices lofty.

Food inflation soared nearly 30% in August from last year and more than 3% from the previous month, while prices in the hotels and restaurants sector as well as household goods also jumped.

Reflecting the currency slide this year, the producer price index rose 2.77% month-on-month in August for an annual rise of 45.52%, the data showed.

The lira weakened a bit after the data and stood at 8.34 versus the dollar at 0810 GMT.

“The central bank’s pledge to keep the policy rate above inflation becomes more difficult now (but) we do not think the bank will opt to hike rates,” said Haluk Burumcekci, founder of Burumcekci Consulting.

The bank will likely continue to stress that food price rises are temporary and to emphasize core measures of inflation, which are lower, he said. Burumcekci predicted no rate cut this year due to high inflation.

The central bank expects inflation to dip to 14.1% by year end, lower than analysts believe.

Kavcioglu stressed on the Wednesday calls that core inflation measures are more reflective of trends given pandemic-related price pressures push up headline figures.

Core “C” inflation rose 16.76% in August from last year, compared to 17.22% in July, the data showed.

Annual inflation stood at 18.95% in July and 17.53% in June, and has been in double digits for most of the last four years. The central bank’s official inflation target is 5%.

Reuters

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