Inflation slows to lowest level in years

Bloomberg

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The annual consumer inflation rate in April fell to 6.1 percent, the lowest since July 1970, from 7.9 percent the month before, TurkStat, the statistics office in Ankara said on its Web site yesterday. Prices were expected to rise 6.9 percent, according to the median estimate of 13 economists surveyed by Bloomberg. In the month, prices rose 0.02 percent.

The slowdown confirms Central Bank forecasts that the global crisis will slash demand at home and abroad, helping to slow inflation to about 6 percent by the end of the year. The Bank has shaved 7 percentage points from its benchmark rate in the past six months, and said last week there is room for further "measured" reductions.

"The outlook for inflation is extremely good and I think the Central Bank’s forecasts are entirely reasonable," said Gizem Öztok, economist for Garanti Securities in Istanbul, who expects inflation to reach a low of about 5 percent in the third quarter. "We’re expecting the Bank to cut by a half-point this month and there’s a strong chance they’ll go further in the months ahead."

Turkey’s economy shrank 6.2 percent in the fourth quarter of 2008, the first contraction in seven years, and subsequent data shows the recession continued into 2009. Industrial output in February plunged 23.7 percent, the most since records began in 1986.

Global crisis begins to curb domestic demand

Inflation peaked at a four-year high of 12.1 percent in July, before the global contraction began to curb demand. The government helped bring the rate further down by cutting taxes on new cars and home appliances for three months starting from March. The government also reduced natural gas prices for homes by 25 percent on May 1.

Central Bank Governor Durmuş Yılmaz is targeting an inflation rate of 7.5 percent at the end of this year, 6.5 percent in 2010 and 5.5 percent in 2011. The Bank cut interest rates to 9.75 percent last month and is due to hold its next rates meeting on May 14.

The cost of goods leaving Turkish factories and mines fell an annual 0.4 percent in April, compared with a 3.5 percent increase the previous month, TurkStat said. Producer prices rose 0.7 percent in the month.