Turkish inflation jumps to 12.6% in test for central bank

Turkish inflation climbed more than expected to 12.62% year-on-year in June, official data showed on Friday, drifting further away from the central bank’s target after it abruptly halted a policy easing cycle last week.

The month-on-month consumer prices rise was also stronger than expected at 1.13%, the Turkish Statistical Institute said, compared to a Reuters poll forecast for 0.65%. The poll saw annual inflation at 12.09% in June, after it edged up to 11.39% in May.

The central bank – which forecasts 7.4% inflation by year-end – cited upward price pressures when it unexpectedly held rates steady last week. Nearly a year of aggressive cuts has left Turkey’s real inflation rate well into negative territory.

The “horrible” inflation data “underscores that the (bank) is failing in its core mandate to fight inflation while blowing thru FX reserves at the same time,” said Tim Ash of BlueBay Asset Management.

Turkey’s lira was unchanged at 6.855 versus the dollar.

Jumps in food, alcohol, housing, and health prices drove up the annual figure last month, as the Turkish economy began emerging from the near standstill of a coronavirus lockdown.

The poll’s median estimate for end-year inflation was 9.5%, well above the central bank’s April forecast.

But the bank – which cut its policy rate to 8.25% from 24% last summer – could reconsider its view after last week citing “some increase” in core inflation trends. In minutes of the meeting, it said expectations for the year-end increased slightly last month.

The producer price index rose 0.69% month-on-month in June for an annual rise of 6.17%, the data showed.

Inflation has remained well above the bank’s target range around 5% since a currency crisis in 2018. It briefly touched single digits last year but drifted higher in recent months.

The lira hit an all-time low against the dollar in May and is down around 13% this year. A further depreciation would risk higher inflation via imports.

“If inflation were not to cool down, the FX market would switch to discounting a much more deeply negative real interest rate than it is doing now – and this would imply more selling pressure on the lira,” said Tatha Ghose at Commerzbank.


Istanbul retail prices rise 0.07% month-on-month in June

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