Turkey's inflation edges towards double-digit

 03 Feb 2017 - 20:45

By Humeyra Pamuk / Reuters

Turkey's consumer prices jumped more than expected in January on the back of higher food and energy costs and lira depreciation, pushing annual inflation towards double-digits and putting further pressure on central bank monetary policy.
Monthly prices rose 2.46 percent compared with a Reuters poll forecast of 1.78 percent. Year-on-year, the consumer price index (CPI) was up 9.22 percent, Turkey's statistics institute said yesterday.
Turkey's central bank has already raised its year-end inflation forecast this week and taken unorthodox monetary tightening steps to tame price rises and defend the lira currency, which has lost more than 7 percent this year.
But analysts and politicians predict a high inflation period ahead, even though it may slow down in the second half of the year, with economists suggesting the central bank might be forced to take further tightening steps.
"That January inflation was worse than expectations suggests that inflation might hit double-digit latest in second quarter of 2017," Ozgur Altug, economist at BCG Partners, said in a note.
"We think a tighter monetary policy might still be required. We foresee further deterioration in inflationary expectations in the coming months," he wrote. Turkey's central bank is to hold its policy-setting meeting in March.
Food and beverage prices rising more than 7 percent and transportation costs increasing by 15.6 percent - among the key drivers of the inflation basket - helped push up the annual figure, data showed. The biggest rise was in alcoholic beverages and tobacco, with a 22.9 percent jump year-on-year.
The central bank raised its inflation forecast for the end of 2017 to 8.0 percent from 6.5 percent this week. Finance Minister Naci Agbal told the state-run Anadolu agency he expected a brief period of high inflation in the first half of the year, but that falls in the second half would help bring inflation to the 8.0 percent forecast by the end of 2017. Investors have been unnerved by insecurity, political uncertainty and a slowing economy. But they also worry the central bank is under political pressure to avoid taking decisive action to support the lira and tame inflation.
The bank raised its main policy rate - the one-week repo rate - on November 25 for the first time since 2014 but it has remained unchanged since and President Tayyip Erdogan has made it clear he wants borrowing costs to stay low to boost growth. The lira has fallen more than 7 percent this month after double-digit declines in both 2015 and 2016, making it one of the world's worst-performing currencies, while the economy shrank in the third quarter for the first time in seven years.
Core inflation, which strips out volatile food prices, was 7.74 percent year-on-year in January, while producer prices climbed 3.98 percent on the month .