Turkey#039;s Inflation Rate Increases More Than Expected
The Turkish Consumer Price Index rose 1.63 percent from March, pushing the annual rate of inflation to 7.91 percent, according to a statement from Turkish Statistical Institute.
Economists polled in an Anadolu Agency survey on April 30 had predicted inflation would rise 1.34 percent from the previous month and reach an annual rate of 7.60 percent.

The food and nonalcoholic beverages index rose by 14.36 percent year-on-year. Food has been named as the chief driver of Turkish inflation by Central Bank Governor Erdem Basci.

In a speech in Istanbul on April 30, Basci said: "Rising food prices put a restraint on disinflation. In this period, oil prices and TL-denominated import prices led to cost pressures on inflation. With accommodative weather conditions and possible policy measures, food inflation may have ample room to decline."

Basci had noted that core inflation had been declining for the first quarter of the year. However, core inflation is now up 2.03 percent, according to Monday’s statement.

"This month we saw an increase in core inflation from the previous month, which is a sign that core inflation once more started to push up headline inflation," Adnan Cekcen, a financial analyst at Destek Securities in Istanbul, said.

Economist Attila Yesilada, of Global Source Partners, said the Turkish economy was not benefitting from low oil prices.

"With this latest reading, it's clear that core inflation is now increasing and we forecast it to reach nearly the same levels as headline inflation," he said. "This means that the currency pass-through [the effect of the Turkish lira’s decline against the dollar and the euro] is an obstacle to any decline in inflation."

Some analysts, however, think a reduction of food inflation is possible and that it will help to speed a decline in overall inflation.

"Food is the last obstacle in front of Turkey’s disinflation process," Bora Tamer Yilmaz, an economist with Ziraat Securities in Istanbul, said.

"That’s beyond the Central Bank’s direct control. The newly established Food Commission has commenced its operations and can help curb food prices with structural policies and through policy coordination. Since food inflation has a larger variance compared to the headline inflation figure, any improvement in food prices will affect the headline quite sharply and suddenly.

"One can expect food prices to revert in summer months, on the back of better climate in winter months and structural initiatives by the food committee. As a specific case, due to supply shortage potato prices increased by 28.5 percent in April."

The Food and Agricultural Products Markets Monitoring and Evaluation Committee, founded in December, met for the first time on April 7.

Inflation figures are closely watched in Turkey as Central Bank officials have said they would maintain a tight monetary policy until there are clear signs of improvement in the inflation outlook.

In its April 30 report, the bank announced a revision to its year-end inflation forecast to 6.8 percent. Analysts, however, are now predicting year-end rates of 7 to 7.5 percent.

"If inflation surpasses the 8 percent mark, anticipation for a more hawkish policy from the central bank will be intensified and they may skip one more policy meeting without cutting rates," Cekcen said.

He agreed that the inflation rise could pressure the Turkish lira lower against the dollar.

Basci has said the Central Bank will maintain a "cautious monetary policy" and use credit control measures to tighten liquidity, a strategy that is aimed at supporting the value of the lira.
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