Turkey’s November inflation slightly above expectations

Inflation in Turkey hits 8.1 percent in November, is caused by rising food prices but economy keeps growing powered by domestic demand

Photo by: AA
Photo by: AA

Despite a rise in inflation rose in November, analysts said inflation in Turkey is stabilizing and domestic demand is driving growth but not pushing up prices.

Inflation hit an annual rate of 8.1 percent in November from 7.58 percent in October, the Turkish Statistical Institute (TurkStat) reported on Thursday.

Inflation was up 0.67 percent in November from the previous month. The highest increase was seen for clothing and footwear, up 5.37 percent from October.

However, food prices rose 1 percent from the previous month.

In its most recent inflation report, the Turkish Central Bank said rising food prices were one of the most important inflationary pressures but were beginning to fall back. The report noted that inflation has been stabilizing in Turkey for the past six months.

Annual inflation has ranged between about seven to eight percent during that period.

“Due to the exchange rate pass through, Turkish inflation is set to rise in the first quarter, and then it is expected to fall back gradually next year,” Atilla Yesilada, an economist with Global Source Partners in Istanbul, said.

The Turkish lira has depreciated by around 30 percent against the dollar since the beginning of the year.

With inflation stabilizing, domestic demand continues to drive economic growth in Turkey.

Consumer spending rose to $7.38 million in the second quarter of 2015, up from $7.37 million in the first quarter, according to TurkStat. Turkish consumers spent about $453.6 million in 2014, compared to $447.7 million the previous year.

“Consumers continue to spend,” Yesilada said. “They have pushed the price of houses, for example, in Turkey up by almost 90 percent this year from last year.

“Moreover, the planned increase in the minimum wage to 1,300 Turkish liras per month will support further consumer spending, along with a substantial fiscal stimulus package that the new government has promised.”

In the medium- to long-term, structural reforms planned by the government voted into office on November 1 are expected to boost economic growth.

Labor market reforms and increased job flexibility could help increase Turkey’s output growth, according to Ugras Ulku, a senior economist at the Institute of International Finance.

Credit growth has slowed in Turkey, a change that would normally slow consumer spending, but Turkish consumers have held back on spending during the period of political uncertainty that preceded the general election, Bora Tamer Yildiz, an economist with Ziraat Securities in Istanbul, wrote in a note published November 23.

He said the return of political stability had seen the lira correct itself and volatility come down as a lower level of risk will help the lira’s performance.

Improving conditions in Europe should also help Turkish exports, Yildiz added, contributing to growth in the coming year.