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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.

February inflation: no room for monetary easing

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
[2003=100]

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
 [2003=100]
 

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
 [2003=100]
 

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.  
 

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