Turkey's inflation declines more than expected in June

ISTANBUL - Hürriyet Daily News

The file picture shows a marketplace in Istanbul’s Kartal district. Food prices dropped the most in June in a monthly comparison. Hürriyet photo

Both consumer and producer prices in Turkey dropped in June on a monthly basis, the Turkish Statistical Institute (TÜİK) said yesterday. Consumer prices dropped 0.90 percent, and the producer prices index decreased 1.49 percent last month compared with May.

The drop in consumer price inflation, which was higher than market expectations, was mainly on food, transportation and clothing prices. Food prices have the highest weight with 26 percent in the consumer price inflation basket.

“The surveys showed [a market expectation of] a 0.4 percent drop [in consumer prices]. This was below expectations and a fast drop,” said Gülizar Özdemir Türk, research director at Anadolu Investment.

“We will see whether the Central Bank will make an improvement in its July inflation report. If expectations [on a higher inflation rate] increase, an interest rate cut may be on the agenda,” she said.

However, consumer price inflation rose to 8.87 percent in June, while producer price inflation was up 6.44 percent on a 12-month comparison. The consumer price inflation was 6.24 percent and the producer price inflation was 10.19 percent in June 2011. Consumer price inflation in June pushed a 12-month inflation average to 8.89 percent, TÜİK said.

A breakdown by category showed that alcohol and tobacco prices had shot up by 18.69 percent over a year, while the cost of goods and services gained 14.92 percent, and household furniture prices were 9.83 percent higher.

Year-end inflation

“With this latest data, as long as the risk appetite in the global economy is not disrupted significantly and oil prices keep their moderate level, the year-end inflation figure will be in line with the Central Bank’s expectation,” said Akbank Economic Research Department in a report yesterday.

Turkey’s Central Bank forecasts consumer price inflation to fall to 6.5 percent in 2012.

“Food prices are the main reason in the [consumer price inflation] drop more than market expectations. The data are very positive. It may allow the Central Bank to leave its tight monetary policy behind,” said Özlem Derici, an economist at Erste Securities. The Central Bank may revise down its year-end inflation to 6 percent, according to Derici.

The highest monthly increase was 1.92 percent in communication prices by the main expenditure groups, while education prices rose 1.67 percent. The inflation figures for recreation and culture was 0.90 percent, for miscellaneous goods and services it was 0.88 percent, for furnishings and household equipment it was 0.49 percent, for hotels, cafes and restaurants it was 0.49 percent and for food and non-alcoholic beverages it was 3.42 percent. 

The highest monthly increase in the producer prices of industrial activities was recorded at 2.97 percent in communication equipment. Producer prices increased 1.72 percent in the electricity, gas and water category. Producer price inflation decreased 0.55 percent in mining and stone quarrying, and 0.75 percent in the manufacturing.

“The drop in inflation in the aftermath of the growth and exports figure [disclosed a day before] was not surprising. The Central Bank said inflation would start to fall quickly after May. The data indicates the credibility of the Central Bank,” said economist Emre Alkin, adding that the Central Bank would not have to revise down its year-end inflation expectation.