Turkey: Core inflation rises challenging the CBRT policy stance – BBVA

Recent data showed consumer prices rose by 1.25% in September in Turkey. Core inflation surprised to the upside, noted analysts at BBVA’s Research Department, representing a challenge to the recent easing bias introduced by the Central Bank of the Republic of Turkey (CBRT). They expect consumer inflation to increase further in October before declining to near 17% at the end of the year.

Key Quotes: 

“Consumer prices increased by 1.25% in September parallel to market expectations (1.27%) but slightly higher than ours (1.15%), resulting in an annual inflation of 19.58% up from 19.25% the month before. Our main deviation was due to core prices inflation, which surprisingly strengthened to 16.98% in annual terms.”

“Domestic demand remains strong on basically consumption and inflation expectations keep deteriorating. Besides, high food inflation due to drought and losses on several natural hazards, strengthening cost-push factors, and potentially ongoing energy price hikes following the pressures from global prices maintain risks on the upside for inflation outlook.”

“We expect consumer inflation to increase further in October before declining to near 17% at the end of the year, led by the decline on positive base effects. Risks are clearly on the upside on our forecast, challenging the recent easing bias of the CBRT.”