Turkey's Inflation Pressures Weaken in October as CPI Drops to 1-Year Low

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Researched by Industrial Info Resources (Sugar Land, Texas)--Turkey's inflation rate slowed in October, in line with forecasts, fueling expectations for a rate cut from the Central Bank of Turkey (CBT). According to figures from Turkish Statistical Institute (TURKSTAT), the consumer price index rose to 1.96% from the previous month, while the annual inflation figure came down to 7.8% from 9.2% in September, primarily on base effects.

In October, food and energy prices and the impact of the sizeable hikes in utilities were the main contributors to inflation. The rise in clothing prices was lower than the seasonal average, showing signs of dull domestic demand. Also, the core inflation, which strips out volatile prices such as food and energy, eased to 6.1%, the lowest since July last year, from 6.7%. The producer price index rose 0.17% in October, compared with a 1.03% rise in September, and rose 2.57% for the year. The rise in the special consumption tax rate led to 5% to 8% increases in gasoline and diesel prices, as expected. Similarly, the 10% rise in natural gas and electricity prices were fully reflected into the final prices.

"We expect headline inflation to ease to 7.2% yearly in November and to 7% in December--lower than the CBT's current forecast. In fact, if the recent decline in oil prices does not reverse, we might even witness a lower rate," said Tevfik Aksoy, a senior economist at Morgan Stanley (London, England). "The overall expectation of an easing annual inflation trend in the coming months should also help the CBT to gradually lower the upper end of the overnight rate corridor. We currently think that another 50 basis points cut in the upper end to 9% is likely."

In late October, the CBT raised its inflation forecasts for 2012 from 6.2% to 7.4%, and end-2013 forecast from 5.1% to 5.3%. Economic growth in Turkey slowed to 2.9% in the second quarter from 9.1% a year earlier. The CBT already has cut its overnight lending rate by 2 percentage points since September, to 9.5%.

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