Central Bank of Turkey: Rampant Inflation in Turkey

Choppy trading continues for the Turkish lira after President Recep Tayyip Erdogan was elected once again on Monday. As the status quo was kept, the lira strengthened about 4.0 percent early in the trading day but quickly capitulated to weakness giving back most of the progress it had made on the US dollar. The depreciating lira is leading to troubling trends in Turkey’s core inflation and price indexes. The Turkish Central Bank discusses this in its “Monthly Price Developments.

In general, May consumer prices grew by 12.15 percent on an annualized basis, 1.3 points higher than the April number of 10.8 percent. The Turkish central bank saw two main forces on prices in this period. Primarily, the depreciation of the lira deteriorated purchasing power for consumers as imported goods have become more expensive. Besides the direct threat of currency deflation, the central bank also pointed to rising commodity prices affecting inputs on most major consumer goods.
D - CPI excluding unprocessed food, alcoholic beverages and tobacco

Categories excluded from the D measure saw steep declines in annual inflation. Annualized inflation of unprocessed food fell from 27.33 percent to 8.49 percent, and annualized inflation of alcoholic beverages fell from 21.69 percent to 1.05 percent. Interestingly, both categories saw an uptick in inflation on a monthly basis. In fact, unprocessed food inflation was 2.58 in May 2018 and -1.95 in May 2017.

The short-term spike in inflation is evident across all sub-categories of the CPI. Fresh fruits and vegetables saw the largest disparity in monthly inflation year-over-year, from -7.77 percent in May 2017 to 0.02 percent in May 2018. The sharp differences reveal a return to volatility in inflationary trends due to foreign exchange fluctuations. This volatility could unsettle the market for consumers once again pushing processed food inflation higher in tandem with unprocessed foods.

Producer prices grew by an even larger rate. In May 2018, annualized inflation grew by 3.79 percent over the previous year to an all-time high of 20.16 percent. As expected, annualized energy inflation grew from 11.50 percent to 29.59 percent, almost tripling. Non-durable and durable consumption goods annual inflation numbers stayed relatively flat. The pressure of rising prices hasn’t moved to affect the next level of processed goods, but if the trend of rising inflation in input goods continues, the trend will continue into the finished good segment.


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