Turkey: Inflation Falls 6,4 Percent month-on-month in June
Headline inflation down, core on the rise
Inflation on food and non-alcoholic beverages increased 4.7 percent in May. Turkey’s headline inflation fell by 1.43 percent in June compared with a month earlier, mainly due to an apparent drop in food prices, according to data published by the Turkish Statistics Institute, or TurkStat.
“We believe the June inflation figures will contribute to the credibility of the Central Bank and will lighten pressure on interest rates in the short term,” ING Bank said in a short note on Monday.
Inflation on food and non-alcoholic beverages increased 4.7 percent in May. However, the Central Bank forecasted that there would be a significant correction downward in the following months. The bank is forecasting yearend inflation at 6.9 percent.
The fall in the consumer price index was considerably below market expectations of 0.75 percent on average. Meanwhile, yearly inflation dropped to 6.24 percent in June from 7.17 percent in May, according to TurkStat data.
Food and non-alcoholic beverage prices, which have a weight of 27 percent in Turkey’s basket, fell 6.4 percent month-on-month in June. All other items displayed a rise. Housing prices increased by 0.24 percent during June, whereas garment and shoes prices increased by 0.64 percent, according to TurkStat data.
Moreover, core inflation rose 0.6 percent, increasing the year-on-year rate to 5.3 percent in June from 4.7 percent in May. “The increase is due partly to higher import prices and a weaker Turkish Lira,” Akbank said in a note on Monday.
Producer prices, on the other hand, rose 0.01 percent in June from May, which nevertheless brought the annual change to 10.2 percent. Lower prices for agricultural products were effective in limiting the rise in the producer price index.
“We expect consumer prices to keep their low levels for some months and foresee no major changes in food prices during the summer,” Nurhan Toğuş, Ata Securities’ chief economist told the Daily News in a phone interview Monday. She also said she expected the increase in production prices to be sustained in the coming months, due to the country’s considerable growth in the first two quarters of 2011.
The fall in food prices is only due to seasonal effects, and a sustained rise in production prices might cause an increase on the consumer side as well, Halil Seyidoğlu, an economics professor at Doğuş University, told the Daily News on Monday. “Although inflation might not increase in the coming six months, the inflation risk will be maintained [in the medium run],” he said.
Turkey’s economy is controlled by hot money and attached to a valuable Turkish Lira policy by keeping exchange rates low, according to Seyidoğlu. “An overvalued lira makes Turkish imports cheaper, which causes a fall in consumer prices,” he said.
There is a general consensus among analysts that given the decrease in food prices, the Central Bank might decide to wait longer for an interest rate hike.
“The depreciation of the lira and strong domestic demand have started to take a toll on inflation as evidenced by the rise in core inflation and inflation expectations,” said the Turkish lender TEB in a note to investors on Monday. “We believe that by September it will become clear that core inflation will remain above the Central Bank’s target of 5.5 percent and the bank will be more inclined to hike rates.”
July 4, 2011
SOURCE: Hürriyet Daily News
