Turkey’s June inflation surprises markets with higher-than-expected rise

ANKARA

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Turkey’s inflation rose slightly in June, disappointing markets that have been expecting the upward trend in prices to stall and raising uncertainities over the long-term projections.

According to data from the Turkish Statistics Institute (TÜİK), the consumer price index (CPI) rose 0.31 percent in June, above expectations that were hovering at around 0.02 percent, mainly due to noteworthy increase in food prices.

Annual inflation, meanwhile, dropped to 9.16 percent, which is still well above the Central Bank’s year-end forecast for 7.6 percent and its 5 percent medium-term target.

The TÜİK data also showed that the rise in the producer price index (PPI) was 0.06 percent, a 9.75 percent annual rise.

The Central Bank, as well as analysts, was expecting inflation to start receding in June after coursing high through the March-May period.

 “Annual inflation plunged to the 9.1 percent level from 9.7 percent, but seasonal inflation is below zero and the latest data being high is not positive,” said Garanti Investment Chief Economist Gizem Öztok Altınsaç.

“The 0.4 percent rise in food prices, as well as remarkable increases in the prices of services like health, education, restaurant and hotels have also affected the higher-than-expected inflation,” Altınsaç added.

Annual inflation had climbed to its highest level in two years in May, rising to 9.66 percent, after surging by 0.4 percent over the previous month.

The Central Bank Governor Erdem Başçı has insisted that the Bank would reduce interest rates only if it is convinced that the inflation outlook is improving. However, despite annual inflation hovering at almost double its medium-term target of 5 percent, the Bank cut its benchmark interest rate for two consecutive months in May and June, by 0.5 and 0.75 points.

Now analysts say the new data will likely discourage the Bank from cutting interest rates further in its next policy meeting, despite mounting pressure from the government, particularly from Prime Minister Recep Tayyip Erdoğan.

Erdoğan, backed by Economy Minister Nihat Zeybekci, has been slamming the Bank for not reducing interest rates enough and “jeopardizing growth in investment” in Turkey.

Answering reporters’ questions at a meeting after the announcement of the inflation data, Zeybekci repeated his call for lower interest rates, claiming that the latest data showed inflation had embarked on a downward trend.