Good-Bye High Growth/High Inflation, Hello Stagflation

TURKEY - Report 03 Jan 2017 by Murat Ucer

Consumer prices rose by a much higher-than-expected 1.6% in December, with the 12-month rate ending the year at 8.5%, up from 7% in November, markedly worse than both the Bank’s 7.5% estimate, and our somewhat higher forecast. The jump in food prices is partly to blame, but increase is broad-based, driven by several other factors such as recent tobacco tax hikes, lira weakness and the reversal in energy prices. Producer prices also reversed sharply in December ending the year at almost 10%, y/y, up from 6.4% in November, on the back of higher manufacturing (or lira pass-through) as well as energy prices (Table 1; Graphs 1-2).

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