Turkey’s key annual inflation gauge climbed more than expected to 11.39% in May, and official data on Wednesday showed the monthly reading also jumped, suggesting prices remained lofty even as the economy slowed and interest rates were slashed.
Consumer price inflation edged lower in the previous two months due to a drop in oil prices and falling domestic demand stemming from the coronavirus pandemic.
Month-on-month, consumer prices rose 1.36% in May, compared to a Reuters poll forecast of a 0.95% rise. The poll forecast annual inflation would remain flat at 11% in May after it slipped to 10.94% in April.
The monthly rise was led by a 6.85% increase in clothing and footwear prices and a 3.30% rise in transportation prices, according to the Turkish Statistical Institute. The key food and non-alcoholic drink prices were up only 0.24%.
The central bank – which has cut rates in each of its last nine policy meetings – has cited cheaper food and commodities as the reason for its expectation that annual inflation will dip by mid-year and fall to 7.4% by year-end.
The monetary easing has left real rates well into negative territory since late last year for lira depositors.
The lira weakened to 6.7250 after the data from a close of 6.70 on Tuesday when it touched its strongest level since April. A weaker lira risks higher inflation via imports, but the currency has in recent weeks trimmed its losses to 11% against the dollar this year.
Inflation reached a 15-year high of more than 25% in October 2018, after a currency crisis that tipped the economy into recession. Another bad slump is expected this year due to the pandemic.
The producer price index rose 1.54% month-on-month in May for an annual rise of 5.53%, the data showed.