Food inflation slows, helping headline

TURKEY - In Brief 03 Aug 2018 by Murat Ucer

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Consumer prices rose by a lower than expected 0.55% in July, compared with consensus expectation of 0.9%-1% (July 2017: 0.15%), which kept the 12-month rate a bit under 16% -- for now (15.85%). Producer price inflation continued to edge up, so did core (C-index) and service inflation, however, which now stand at 25%, 15.1% and 11%, y/y, respectively. These figures show rather plainly that broad-based inflation pressures continue unabated, the relatively better-than-expected headline inflation notwithstanding (Graphs 1-4; Tables 1-2).In fact, given that; 1) lira depreciation is continuing – if, for instance, the lira was to finish the month at today’s levels (around TL5.45-5.50 to the basket), we would see another 5%-5.5% or so depreciation, m/m, in August (Graph 5) – and that, 2) we will begin to see the impact of recent hikes in electricity and natural gas prices in the August inflation print, CPI-inflation has yet to peak, i.e. it is likely to rise further to well above 16% in August/September.Finally, as for the slightly positive headline surprise, it was largely driven by food inflation it looks like, which appears to have risen somewhat less than expected, though the monthly drop of 0.3% as such, seems broadly in line with historic (July) prints --barring a few extreme observations (Graphs 6-7).The bottom line is that today’s inflation print, though better than expected, does not change the inflation outlook. As noted, CPI inflation has probably yet to peak, which should rise well above 16% in the coming months, and then finish the year at little under 16%. GRAPH 1TABLE 1GRAPH 2TABLE 2 GRAPH 3GRAPH 4 GRAPH 5GRAPH 6 GRAPH 7