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Turkey’s 2018 inflation at 20.3% with consequences!

All combined, Turkey's 2019 CPI inflation is designated to remain below the 2018's 20.3%. The level of difference will be mainly determined by the government's choice of actions on the bad debt problem and of course partly by the general sentiment in emerging markets. Nonetheless, it would be safe to assume the YE2019 CPI inflation within 16-17% range.

Turkey’s 2018 inflation at 20.3% with consequences!

No doubt Turkey went through a very severe currency crisis in 2018 triggered by significant imbalances in the country’s macro-economic indicators starting with a loss of control on the inflation front.  What was staged up until late September fed the inflation rate further as a vicious cycle and Turkey ended 2018 with 20.3% CPI inflation compared to its 5% inflation target.  As lira’s deprecation played the major role in this strong spike on the inflation front; the drop in the price of oil, lira’s late found stability in 4Q18 and of course the government’s consumption tax cuts that began on a temporary note yet extended into 1Q19 later pulled down the CPI inflation to 20.3% from its September peak of 25.4%.

In 2019, the base year effect calls for an ease in Turkey’s inflation rate.  Yet, the pace will be determined by mainly two factors: lira’s 2019 performance and the oil prices.  Domestic demand will not be a concern in terms of inflationary forces as Turkey is engaged to an economic contraction period to last until at least to the 1H19.  Yet, if the rapid decline in the oil prices is to be followed by a rapid spike, it could have the force to cap the slide expected on the inflation front.

Lira’s performance is rather more dependent on various factors.  If the government, after the March 31 local elections plays its cards wisely, another bout of currency meltdown is not expected.  The stimulus measures that hurt the very critical 2019 fiscal targets could as well be rolled back starting from 2Q19.  Yet, more importantly, the bad debt set to rise in the banking sector books needs to be attended with a realistic approach in order for the lira to keep its ground.  Moreover, other economies matter.  As we have all just seen very recently, the worries coming from the Chinese economy had the muscle to push lira down fast which again proves how emerging market currencies are subject to weakness amidst negative news flows to last throughout 2019.

All combined, Turkey’s 2019 CPI inflation is designated to remain below the 2018’s 20.3%.  The level of difference will be mainly determined by the government’s choice of actions on the bad debt problem and of course partly by the general sentiment in emerging markets.  Nonetheless, it would be safe to assume the YE2019 CPI inflation within 16-17% range.   

Below are the details of Turkey’s December inflation: 

Turkey’s consumer price index (CPI) decreased by 0.40% in December 2018, marking the 2018 CPI inflation as 20.3% compared to 2017’s 11.9%. Core inflation remained elevated at a discouraging 19.5% yoy, though below the peak recorded in October 2018 with 24.3%.  Turkey’s YE2018 CPI inflation would translate to roughly 10% additional wage hike for the public sector employees.

Consumer price index, yoy, December 2018 [2003=100]

The 2.6% monthly decline in the “transportation” prices is the main reason that have kept the headline monthly CPI inflation in the negative territory; thanks to both the energy price cuts and consumption tax cuts. Not surprisingly, the highest monthly increase was 1.08% (25.11%, yoy) in “food and non-alcoholic beverages” reflecting the long coming structural problems in Turkey’s agriculture-food chain sectors. Thanks to the seasonal sales, the highest monthly decrease was 4.08% (14.8%, yoy) in “clothing and footwear” prices. Consumption tax cuts have helped keeping the monthly rise in “furnishing, household equipment” prices at bay with 0.13%, yet on annual basis it recorded the highest jump with 31.4% plagued by lira’s loss of value.


Turkey’s December domestic producer price index (D-PPI) decreased by 2.22% which carries the annual D-PPI inflation to 33.64% for 2018 versus 15.5% at end-2017.  While lira’s relative stability played a role on the headline D-PPI performance, it was mostly the strong drop in the price of oil that yielded -2.2% December D-PPI.
Domestic producer price index, yoy, December 2018 [2003=100]

The lira appreciation marked the monthly D-PPI performance as the prices in the “mining and stone quarrying” decreased by 2.46% (24.3% yoy), by 1.56% for “manufacturing” (31.1% yoy) and the highest by 8.47% for “electricity and gas” (75% yoy) compared with the previous month.

D-PPI, December 2018 [2003=100]

The highest monthly decrease was in crude petroleum and natural gas of course, by 22.56%, for coke and refined petroleum products by 13.14%.

D-PPI main industrial groupings, December 2018 [2003=100]

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