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Turkey's core inflation to reach 2014 peak?

Turkey's inflation rate is averaged to 36.48% from 1965- 2015. Turkey's CenBank revised its inflation forecast of end 2015 up to 7.9% due to lira depreciation in recent months, October's core inflation reading suggests that CBT may, in fact, have been too conservative about the magnitude of this pass-through.

October core CPI inflation came at 8.9% yoy from 8.2% yoy in September, below the expectations. Last month's significant disappointment when core inflation had crashed through the 8% barrier might have impacted this. 

This core inflation upswing is now a highly noticeable trend, taking inflation back towards its 2014 high. Headline inflation moderated in October from 7.95% to 7.6% which reflects falling commodity prices. 

CBT forecasts 6.5% inflation by 2016 year-end, but it is skeptical that the central will have to ultimately revise this estimate up to 8.5%. 

"Following AKP's landslide victory in the elections, CBT is no longer expected to hike its benchmark rate in the coming year. High inflation and unchanged interest rates through Fed tightening is expected to result in a higher USD-TRY at around 3.20 by end-2016", says Commerzbank.

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