Turkey’s inflation accelerates above expectations

Rising food prices play a role on Turkey’s consumer price index once again, strengthening economists’ expectations that tight monetary policies will continue

Photo by: ..
Photo by: ..

Updated Jul 28, 2015

Turkey’s April inflation rose 1.63 percent month-on-month, pushing the annual rate of inflation up to 7.91 percent, according to data from TurkStat. Economists predicted that the consumer price index (CPI) would rise 1.34 percent from the previous month and reach 7.60 percent annually, lower than actual figures.  

According to the Central Bank of Turkey, food prices are the main driver of higher than expected inflation data. The annual rise in food and nonalcoholic beverages actualized at 14.36 percent in April, marking the highest increase among all other segments. Monthly 1.72 percent rise in food prices signalled the strongest month-on-month hike since Apr. 2003.  

Turkey’s Central Bank Governor Erdem Başçı raised his year-end inflation forecast to 6.8 percent from 5.5 percent on Apr. 30. Başçı cited a weak lira, rising food prices and higher than expected oil prices as main causes of his forecast update. He added “cautious monetary policies” will remain until desired levels in inflation are reached. 

However, Economy Minister Nihat Zeybekci criticised the bank for being too “hasty” in changing the inflation prediction for 2015. Zeybekci stated that current economic conditions don’t require an update in the inflation expectation. The minister also added that he is not expecting the central bank to cut interest rates in its May monetary policy meeting.     

In order to support the Turkish lira against the globally rising dollar and to bring inflation under control the Central Bank of Turkey has been taking various supplementary measures. As a new measure, the central bank will remunerate dollar denominated reserve requirements, reserve options and free reserves held at the bank. The remuneration of dollar reserves will tighten liquidity on the dollar, starting on May 5. 

According to a statement released by the central bank, the overnight rate for May 5 will be 0.12 percent per annum and the remuneration interest rate will be set on a daily basis by taking global and financial market conditions into consideration. 

A separate report released on Monday showed Turkish factory activity rose in April. 

HSBC’s Turkey Purchasing Managers’ Index (PMI) for manufacturing, which accounts for about a quarter of Turkey’s gross domestic product (GDP) increased to 48.5 from 48.9 in March.

TRTWorld and agencies