Turkey’s inflation accelerates markedly in July

Turkey’s consumer price index accelerated noticeably in July, particularly at the headline level, at par with the central bank’s warnings. Turkey’s CPI rose 1.2 percent month-on-month in July, higher than consensus projection of 0.6 percent. The index was higher than June’s rise of 0.5 percent.

On a year-on-year basis, inflation accelerated to 8.8 percent after slowing to 6.6 percent in May. Meanwhile, core inflation remained flat in July as compared with June’s 8.7 percent year-on-year. Core inflation did not slow as expected by the market. In all, this was a bad inflation data, noted Commerzbank in a research report.

However, most of the momentum came from food prices, which the Turkish central bank had clearly cautioned against. Significantly, the Turkish government has vowed to bring in measure to alleviate supply-chain pressure in food. However, this has been discussed about for certain years, with no tangible results.

“We are sceptical that such measures can even fully calm Turkey's normally volatile food prices,” added Commerzbank.

The July’s inflation data underpins the view that core inflation is not expected to slow by much in the quarters ahead, particularly if political developments result in pushing up USD/TRY pair.

“After this reading, we would expect CBT to, at best, cut the overnight lending rate by another 25 basis points in August -- we do not foresee more aggressive easing just yet. We see USD/TRY at 3.25 by end-2016,” said Commerzbank.