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ANALYSIS: Turkey September inflation: Hallelujah!

The spill over from 72 percent year on year energy price increase is set to plague the CPI side into 2019 given the permanent spike in fixed costs and that will make the September-October inflation in Turkey hardly the peak level as claimed by the government.

ANALYSIS: Turkey September inflation: Hallelujah!

State statistics office announced Turkey’s September consumer price inflation (CPI ) at 6.3 percent on monthly basis bringing the 12 month CPI inflation to 24.52 percent!

The highest monthly increase was 11.41 percent in furnishing and household equipment; the indices rose for transportation 9.15 percent, for miscellaneous goods and services 7.42 percent, for recreation and culture 6.62 percent and for food and non-alcoholic beverages 6.40 percent.

What is more was the core inflation that stands at 6.76 percent bringing the year on year core inflation to 24.05 percent. The meaning of course is that beyond September-October which Minister Albayrak had claimed that the inflation will peak in Turkey to retreat there after; is not likely. 

Domestic producer price index (D-PPI) increased by 10.88 percent on monthly basis, in other words by 46.15 percent on 12 month basis. The highest rates of monthly increase in D-PPI by sub divisions of industry were index for electricity,gas products by 40.2 percent carrying the 12 month price hike to 71.9 percent.

 

Looking forward… CPI set to rise further

The recent calm in lira based on hopes for the release of Pastor Brunson on 12th of October and following the benefit of doubt granted to the government following the announcement of the New Economy Program (NEP) looks to have melted away with the awful September inflation numbers.

The current level of CPI at 24.5 percent and PPI at 46.15 percent both are the result of monetary policy mistakes conducted over the past couple of years; but especialy in the first half of the year. Lira’s 40 percent devaluation year to date is having a high pass through on inflation given the intermediary goods imports based production structure of the Turkish economy and Turkey being an importer of energy.

The central bank’s 625 basis point rate hike delivered in September is now short of what is needed to reverse the trend in inflation and the markets are likely to push for further rate hikes through further lira depreciation. As such happens- if it happens- Turkey’s economic growth will dive in the negative territory which has already begun on a faster pace in 2019.  The release of Pastor Brunson which is read as better Turkey-US relations could earn the government some time before lira starts deprecating again.  Yet, spill over from 72 percent year on year energy price increase is set to plague the CPI side into 2019 given the permanent spike in fixed costs and that will make the September-October inflation in Turkey hardly the peak level as claimed by the government.

Güldem Atabay.

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