Another ​benign inflation print thanks to food prices, as stickiness continues

TURKEY - In Brief 03 Jun 2019 by Murat Ucer

---

Consumer prices rose by a lower than expected 1%, m/m, in May (consensus: around 1.3%), with the 12-month rate thus easing to 18.7% from 19.5% in April. Monthly Domestic-PPI inflation was 2.7%, on the back of a weaker lira and higher energy prices, but given last year’s elevated base, the 12-month D-PPI inflation also fell to 28.7% from 30.1% in the previous month. That said, the PPI inflation in particular as well as its spread over CPI-inflation (which has been hovering around 10 percentage points in recent months) remain high, attesting to continuation of cost-push pressures (Graph 1; Table 1). The unexpectedly sharp drop in food prices was a key driver of lower CPI inflation this month (at least as far as our forecast is concerned), which dropped to a 12-month rate of 28.4%, from 31.9%, or shaving off some 0.3 ppt from overall CPI-inflation this May, compared with a positive contribution of about same magnitude last May (Graphs 2-3). Most other sub-categories pointed to softer inflation pressures this May (some puzzlingly so, like houseware, which typically responds to lira weakness), but some service-concentrated sub-categories (e.g., hospitality, culture, education), were broadly unchanged. As a matter of fact, service inflation, which was unchanged at 15.1%, y/y, remained sticky through May (Graph 4; Table 2).And last, but certainly not least, core inflation (C-index) also eased to 15.9% from 16.3% in April, but its monthly (seasonally-adjusted) pace has edged up slightly to (a 3-month moving average) of 0.5%, from some 0.4% in April, reflecting recent lira weakness, which, in principle, should continue driving monthlycore inflation somewhat higher in the coming...