August inflation in Turkey surprised markets negatively, as the Turkish Statistics Office said the consumer price index rose by 0.73 percent while the producer price index increased by 1.76 percent compared to the previous month. Twelve-month rolling inflation thus reached 6.65 percent, while inflation in the first eight months of the year stood at 3.75 percent.
Analysts, who predicted a monthly rise of only 0.3-0.4 percent, had mixed reactions to the figures and remained divided over whether the Turkish Central Bank would continue to cut interest rates. In an extraordinary meeting at the start of August, the Central Bank’s Monetary Policy Committee had cut its policy rate to a record low of 5.75 percent, defying all expectations.
According to Monday’s data, the price of the “various goods and services” item rose by 4.55 percent in August, compared to July. The monthly rise in transportation costs was 1.9 percent, while prices of food and non-alcoholic beverages rose by 1.38 percent. The monthly increase in houseware prices stood at 0.83 percent. In contrast, prices for apparel and shoes fell by 4.35 percent.
The unusual rise in food prices was attributed to the Muslim holy month of Ramadan. Murat Ülgen, from HSBC Global Research, said in his analysis that the rise in houseware and transportation prices could be attributed to the “pass-through” effect of a weaker Turkish Lira.
Ülgen also pointed to the high rise in producer prices, which rose by 1.76 percent on a monthly basis, after coming in flat in July. “This brings the annual rate to 11 percent year-on-year from 10.34 percent in July,” he said. “This is the highest level since November 2008. The difference between the [Consumer Price Index] and the [Producer Price Index] is growing again, arguing for continued pipeline cost pressures.”
Central Bank stance
The analyst said the possibility of another interest rate cut is low. “Instead, if economic activity shows further signs of softness, [the Central Bank] may seek to use other instruments like lower lira reserve requirements to shore up economic activity,” he said.
Banu Kıvcı Tokalı of Destek Securities, meanwhile, noted upcoming risks in September, which traditionally sets the stage for seasonal price adjustments.
“We remain cautious on expectations of continued interest rate cuts,” Tokalı said. “On the other hand, signals of a slowdown in domestic demand seem to provide important support to limit the pass-through effect. As effects of a domestic slowdown become more pronounced, it will be easier to control inflationary risks.”
“All nine tracked measures of core inflation rose in August, with the two most closely targeted by the Central Bank both rising aggressively,” said Timothy Ash of the Royal Bank of Scotland. “The August inflation out-turn is clearly disappointing, as it suggests fairly broad based inflation pressures in the economy.” Ash agreed that inflationary worries will not have much of an impact on the Central Bank’s current policy stance, as the Bank “clearly has its eye firmly on the global outlook, which is admittedly deteriorating fast.”
Speaking to the Anatolia news agency, Gülay Elif Girgin of Oyak Securities said no change in Central Bank policy should be expected. Girgin predicted that in the Central Bank’s inflation report to be released in October, “small revisions” could be seen due to the currency effect on prices. The analyst also reminded that electricity and natural gas prices will increase in the last quarter of the year.
Muhammet Mercan of ING, meanwhile, noted the decline in annual home rents. “[This] shows that cost-push inflation could be limited due to the slowdown in domestic demand,” Mercan said in a note to investors. ”In light of these data, we can say that it is now harder for the Central Bank to cut rates more in the short term.”
|
Source : hurriyetdailynews.com
Hit : 784
|
