Four Passover Seder questions

My friend and unofficial editor Esther, who was taken from her family and friends exactly a year ago, was half-Jewish.  I would like to remember her, while at the same time celebrate Passover and Easter, by carrying an old tradition to my column.

Jews commemorate their exodus from Egypt at Seder, which marks the beginning of Passover. During the dinner, which was possibly Jesus’ Last Supper, the youngest child at the table asks four questions about why this night is different from others. Being a kid at heart, I will ask and answer four questions on March inflation, which was released on April 3.

At 1.2 percent, the monthly rise in the Turkish consumer price index was higher than the expectations of 0.9 percent. As a result, annual inflation rose slightly from 7.5 to 7.6 percent. Is this a bad sign?



Not necessarily. As Turkey economists pointed out, the rise is almost entirely from higher-than-expected food inflation, which they took to be temporary. “I am not going to change my end-year inflation forecast because of cauliflower,” J.P. Morgan’s Yarkın Cebeci told business channel CNBC-e right after the data was released. In fact, core inflation, which excludes energy and food prices, plunged from 7.7 to a 14-month low of 7.1 percent.



So are the data benign? Not really. I wouldn’t change my inflation forecast because of cauliflower, whose price rose the most in March, either. But “the stubbornly high inflation could lead to a worsening in inflation expectations and hence lead to a change in pricing behavior,” Cebeci wrote in his research note on March inflation. So cauliflower, or tomato, pepper or eggplant for that matter, could end up causing him to revise his forecast up, after all.



Besides, despite a weak economy, both core and service inflation are still way above levels consistent with the Central Bank’s 5 percent target. The latter has proven to be particularly sticky. And the recent lira weakness has yet to work its way to prices, as the exchange rate affects core inflation with a lag.



So how will the Central Bank act? These latest figures should have made it more difficult, not less, for the Central Bank to cut rates at its regular monetary policy committee meeting on April 22. However, if the lira turns out to be stable until then, President Recep Tayyip Erdoğan and his entourage could resume their tirades against the Bank. Gov. Erdem Başçı could then use core inflation and food prices to justify a small cut.

Will Turkey’s inflation ever hit the Bank’s target? I doubt it. While I would argue that monetary policy could not afford to be looser at the moment, I am also convinced that there are structural factors behind Turkish inflation, especially sticky service inflation and volatile food prices. In fact, that will be one of my points at the Koç University | TÜSİAD Economic Research Forum conference on inflation dynamics in Turkey on April 10, where I will be one of the panelists.

Even if you didn’t know her, I would really appreciate if you could take a moment to #RememberEsther during Passover. I am sure it would mean a lot to her father, Jamie, who used to ask his own questions at Seder nearly seven decades ago.