Inflation in Turkey came below expectations in March as price gains in energy and transportation cooled.
(Bloomberg) — Inflation in Turkey came below expectations in March as price gains in energy and transportation cooled.
Consumer prices rose 50.5% from a year earlier, data from state statistics office TurkStat showed Monday, compared to the 51.3% median estimate of economists surveyed by Bloomberg. On a monthly basis, prices rose by 2.3%.
Inflation has been slowing since last November but still remains far higher than the Turkish central bank’s official goal of 5%. Currency pressures and government plans to fire up the economy ahead of elections could also prevent further easing.
The economic ripple effects of Russia’s invasion of Ukraine exacerbated price rises in the same period a year ago, otherwise known as base effects, meaning that inflation is now slowing from especially high levels
Core inflation, which strips out volatile items like food and energy, slowed to an annual 47.4% last month, down from 50.6% in February. Another key data, food inflation, was at 67.9%, down from an annual 69.3% in February.
The slowdown in consumer inflation was largely down to energy, where price gains slowed to 35.7% from 50%, during the same period. Transportation costs rose an annual 28.7%, down from 44.9%.
The government’s boost to fiscal spending ahead of general elections on May 14 and in the aftermath of devastating earthquakes in February signal that inflation will remain high.
What Bloomberg Economics Says…
“The sharp drop in Turkey’s March inflation reading could be yet another factor to motivate the central bank to cut interest rates in their April meeting. With inflationary pressures from fiscal and monetary policies set to limit some of the dampening from base effects, we see a relatively flat price gain path in the second half of the year, with year-end inflation above 40%.”
— Selva Bahar Baziki, economist. Click here to read more.
“Inflation could decelerate to 45% mid-year but will end the year higher than that,” Istanbul-based economist Haluk Burumcekci said following data. “The policies do not form a durable anchor for inflation, continuing the deterioration in pricing behavior.”
Regardless of the election outcome, interest rates will have to go up in the second half of the year, many economists forecast. Bank of America Corp sees rates going up to as high as 50% in the third quarter, from the current 8.5%, according to a Bloomberg survey.
President Recep Tayyip Erdogan, who is facing one of the toughest electoral races of his career, rejects the conventional belief that higher borrowing costs can rein in inflation. The easing cycle amid the worst cost-of-living crisis, has put the Turkish lira under pressure. Policymakers have been trying to keep the currency stable in the run up to the vote by regulations and pressure on banks.
The central bank will hold its next rate-setting meeting on April 27 and its second quarterly inflation report on May 11.
–With assistance from Joel Rinneby.
(Updates lede and fourth paragraph, adds chart, economist comments)
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