​Core Inflation Back Above 12%

TURKEY - In Brief 03 May 2018 by Murat Ucer

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April consumer price inflation came in at a higher than expected 1.9% (consensus, us included: 1.6%), even though we had noted that the risks would be on the upside, on the back of recent lira weakness -- with the lira having weakened by over 4% in April against the basket, atop a near-3% weakening in March. The CPI-inflation hence rose to 10.8%, y/y, in April, up from 10.2% in March. Producer price inflation rose at a much faster rate – increasing at over 2 percentage points over March – as it reflects cost-push factors (lira, energy) more directly and immediately, and now stands at 16.4% (Graph 1; Table 1). Aside from the highly negative headline effects, today’s inflation print is troubling for a number of reasons. First, the increase seems broad-based with almost all main sub-components, barring food, having risen more than the same month of previous year, and our diffusion index – which we calculate based on monthly price changes of all goods and services excluding food -- breaking a new record (Graphs 2-3). Second, core inflation (as measured by the most closely monitored C-index), shot back above the 12% mark, y/y, after two consecutive months of modest deceleration. While this increase evidently has to do with the recent lira weakness, it also shows that rigidity in core inflation continues, which is nowadays stuck at a markedly higher plateau (Table 2; Graphs 4-5).Finally, service inflation stays elevated as well, at over 9%, with several key components (e.g., hospitality category) slightly edging up (Graph 6). It is also worth adding that if it weren’t for subdued inflation pressures in the communications sub-category, overall service inflation would also be ...