Turkey's Inflation in July Drops to 0.23%, Rose 9.07% on Yearly Basis

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Researched by Industrial Info Resources (Sugar Land, Texas)--In July 2012, Turkey's inflation rate decreased to 0.23% compared to the 0.9% observed in June. The consumer price index rose 9.07% year-on-year (YoY) in July from 8.87% in June. The Turkish Statistical Institute (TURKSTAT) said that the fall in the consumer price index was driven by lower prices for clothing and footwear, while lower energy prices pulled inflation down by reducing prices in the housing component(-0.61%, the lowest monthly figure since mid-2009).

Also, the core inflation (excluding mainly energy and food) contracted by 0.29%, leading to a marginal increase in the YoY number to 7.5% from 7.43% in June. The producer price index fell 0.31% on the month in July, and rose 6.13% YoY.

"With a complicated global environment, we expect inflation to fluctuate around 8.5% until October before declining to the 6.5% - 7.0% range by the end of the year," said Ilker Domac, a senior economist from Citigroup in Istanbul.

The Central Bank of Turkey (CBT) (Ankara, Turkey) revised year-end inflation forecast down to 6.2% from 6.5% in the July Inflation Report, with regard to a decline in food and oil price assumptions. The bank forecasts consumer prices inflation to hit 5.1% at the end of next year. For additional information on inflation, see July 31, 2012, article -- Turkish Central Bank Cuts Year-End CPI Forecast 6.2%.

The central bank is using an interest rate corridor for funding banks, which gives flexibility to them to tame inflation and rein in the current- account deficit, while keeping economic growth intact. The bank has been fighting to narrow the current account deficit, which ballooned in October 2011 to a record of $78.3 billion.

"We preserve our end-year forecast at 6.5%, and believe that the monthly outcome in and of itself will have no impact on monetary policy, which will continue to be driven by external conditions and exchange rate developments in the near term. Stability in the latter may lead to a narrowing of the overnight interest rate corridor in the months ahead," said Cem Akyurek, a senior economist from Deutsche Bank in Istanbul. Turkey's two-year benchmark bond yields fell to 18-month low of 7.47%, after lower than expected inflation figures.

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