Turkish inflation lower than expected in May
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ISTANBUL: Turkish inflation eased to a lower-than-expected 18.71pc in May, pushed lower by falls in prices for household goods and food, official data showed on Monday, as the economy grapples with the impact of last year’s currency crisis.
In the wake of the crisis, which erased nearly 30pc of the lira’s value against dollar last year, overall inflation peaked at a 15-year high above 25pc in October, before gradually slipping to 19.50pc in April.
Economists surveyed by Reuters had expected inflation of 19.10pc in May.
Month-on-month, inflation stood at 0.95pc in May, lower than a Reuters poll forecast of 1.3pc. The producer price index rose 2.67pc month-on-month for an annual rise of 28.71pc, the data from Turkish Statistical Institute showed.
Household goods prices fell 1.58pc, while food and non-alcoholic drink prices dropped 1.18pc, the institute said.
The largest rise was in alcoholic drink and tobacco prices, which rose 8.88%, it said. Clothing and shoe prices rose 4.09pc.
The lira declined to as much as 5.8925 against the dollar following the inflation data, from around 5.8550 before. It stood at 5.8700 at 0821 GMT, down some 0.4pc from Friday’s close.
The market took the inflation data as a sign that the central bank could cut rates earlier than expected, said Piotr Matys, emerging market forex strategist at Rabobank.
“You would expect local assets to benefit from it but to me this rise (in the dollar) highlights growing concerns that a rate cut is coming earlier than expected,” he said. “It is essential for the central bank to maintain tight policy.”
A cautious message in the central bank’s next monthly price developments report would support the currency, Matys said. The bank is expected to release the report on Friday, after a three-day religious holiday. Its next rate-setting meeting is on June 12.
Concerns over the central bank’s ability to counter rising inflation in the face of calls from President Tayyip Erdogan to lower interest rates sparked last year’s selloff.
The central bank raised its policy rate to 24pc in September to combat rising inflation and support the lira, bringing the total increase last year to 11.25 percentage points.
The high borrowing costs combined with surging import prices hit economic activity, driving the economy into recession. Year-on-year, the economy contracted 3pc in the fourth quarter of 2018 and 2.6% in the first quarter of 2019.
The median estimate in the Reuters poll showed inflation is expected to stand at 16.0% at the end of 2019, slightly above the government’s estimate of 15.9pc.
Finance Minister Berat Albayrak, who is Erdogan’s son-in-law, said that the declining trend in inflation continues and added that Turkey will hopefully achieve its year-end targets.
