Turkish Central Bank raises 2017 inflation forecast to 8.7 pct

ANKARA

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The Turkish Central Bank raised its end-2017 inflation forecast to 8.7 percent on Aug. 1 from a previous 8.5 percent, citing double-digit increases in food prices.     

Central Bank Governor Murat Çetinkaya said at an Ankara news conference that improvements in core inflation were limited, adding that measures taken by the food committee were partially contributing to a fall in food prices.

The consumer price index was announced at 10.9 percent in June, in line with the Central Bank’s previous inflation report. The inflation rate was thus down from 11.7 percent in May, reaching its lowest level in the last four months.

“The realization of the consumer price index close to our forecasts’ upper limit was due to a rise in the unprocessed food prices,” Çetinkaya said. 

“The existing situation in the food inflation and some past realizations for the second half have signaled a need for the food inflation forecast to revise up,” he noted, adding that the food inflation forecast in 2017 was set at 10 percent and 7 percent in 2018. 

The government’s food committee is working toward measures to bring stability to volatile food prices. 

Çetinkaya said the efforts of the food committee contributed to a decline in food prices. 

He also said a fall in assumptions for Turkish-lira-denominated import prices plus a suspension of an automatic tax hike on tobacco products had also impacted on the forecast.        

Çetinkaya added that inflation would stabilize at around five percent in the medium term before falling to 6.4 percent in 2018.      
  
He also said a tight policy stance which focused on bringing down inflation would see the rate gradually reach a five-percent target.      
  
“Current levels of inflation pose risks to pricing behavior and a tight monetary policy will be maintained until the inflation outlook displays significant improvement,” Çetinkaya said. 

He also said the bank would continue to use all available instruments in pursuit of its goal of price stability.

The Central Bank also cut its oil price assumption to $50 per barrel from $55, as it released its quarterly inflation forecast.

Recently released data have indicated an ongoing recovery in the economic activity, Çetinkaya also said. 

“Domestic demand conditions have improved and demand from the European Union economies continues to contribute positively to exports,” he added. 

Economic activity remains strong due to supportive incentives and measures introduced, according to Çetinkaya.