February inflation: no room for monetary easing
With the locals heavily switching to hard currency deposit accounts, the inflation expectations way above the target 6% and the current inflation only a notch below 20%; it would be a mistake by the central bank to alter its tone to a dovish one.
The Consumer price index (CPI) increased by 0.16% in February below the average market expectation of 0.5%; carrying the yoy CPI inflation to 19.67% from 23.35% in January. Yet, back in February 2018 Turkey’s CPI inflation was at 10.26%.
Consumer price index, February 2019
The sub-sectors show that the government’s cheap food sales have almost no effect on food price inflation which rose by 0.9% (29.25%, yoy). The clothing sector prices were down by 4.81% thanks to seasonal ales as they will engage to an increasing trend in a much stronger manner with the new season goods getting out on the shelves starting from April. The 2.58% spike in the health sector prices was eye-catching that carried the yoy level to 17.89% given the February’s 19% adjustments to medicine prices.
As for the core level, the CPI having specified coverage (B) decreased by 0.15% is mostly the by-product of stable lira as it stands at 18.48% on yoy basis which is very high still.
Domestic producer price index (D-PPI) increased by 0.09% on monthly basis, and reached to 29.59% yoy terms, as it eased from 32.9% in January. No need to say last year D-PPI was much tamer at 13.7%.
Domestic producer price index, annual change on same month of the previous year, February 2019 [2003=100]
D-PPI increased by 1.89% for mining and stone quarrying (22.58% yoy) by 0.60% for manufacturing (28.5% yoy) and decreased by 7.43% for electricity and gas (47.38% yoy) despite the lira stability.
Domestic producer price index and rate of changes, February 2019
The highest monthly increase in main industrial groupings was in nondurable consumer goods with 1.5% (24.7% yoy) while capital goods prices were up 0.22% (30.7% yoy)
Domestic producer price index main industrial groupings and rate of changes, February 2019
All combined, at this week’s monetary policy meeting of the central bank, which is the final one ahead of the critical local polls, there is no room for a rate cut or a change of wording towards a rate for the coming next few months. With the locals heavily switching to hard currency deposit accounts, the inflation expectations way above the target 6% and the current inflation only a notch below 20%; it would be a mistake by the central bank to alter its tone to a dovish one. Any wording that hints monetary easing soon would weigh on the lira’s value and feed the devaluation-inflation spiral which keeps the the interest rates elevated.