December inflation: stickiness continues

TURKEY - In Brief 03 Jan 2020 by Murat Ucer

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Consumer prices rose by 0.7%, m/m, in December, slightly higher than the consensus of 0.5%, with the 12-month rate hence ending the year at 11.8%, up from 10.6% in November and 8.6% in October. Producer prices increased also by 0.7% in the month, m/m, with the 12-month PPI inflation thus rising to 7.4%, up from 4.3% in the previous month (Graph 1; Table 1).Looking at the drivers of CPI inflation in terms of the sub-indices, food and transportation prices appear to have made the largest contributions to the monthly headline rate, as well as to the further increase in the 12-month rate (Graph 2). Food inflation is making a come-back or is mean-reverting of sorts, having risen to 10.9% in December from 8.9% in November, as unprocessed food inflation reverses from historic lows, and processed food inflation, quite notably, remains highly sticky as well as highly elevated at a 12-month rate of over 15% in December (Graph 3).Finally, core inflation (C-index) also rose in December to 9.8%, up from 9.3% in November, largely mimicking the ups and downs of the lira (Graph 4; Table 2).While the reversal in the 12-month figures largely owes to low base effects from last year -- and is therefore broadly expected, it’s important to highlight that stickiness in underlying inflation dynamics seems to continue with seasonally-adjusted annualized rates (our calculations) of both the core (most closely watched B- and C-indices) and service inflation all hovering around 10% (Graph 5). There is some softening of sorts in service inflation in December, which is good news, but it is still rather high at over 10% (annualized pace), while core inflation indicators are either flat (C-index) or ...