November inflation drops sharply on lira, taxes, food

TURKEY - In Brief 03 Dec 2018 by Murat Ucer

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Consumer price inflation surprised on the downside in November, coming in at negative 1.4%, m/m, dropping about twice faster than the consensus forecast (around 0.7% drop). Twelve-month CPI inflation fell sharply as a result, to 21.6%, from 25.2% in October. Monthly Domestic-PPI inflation was also a negative 2.5% in November, with the 12-month rate hence declining significantly also to 38.5%, y/y, from 45% in the previous month, thereby narrowing the wedge between CPI- and PPI-inflation (Table 1; Graph 1).In terms of monthly contributions to CPI-inflation, the decline in inflation appears driven mainly by transportation (-1.17 pp) and houseware (-0.24 pp) sub-categories (Graph 2) -- which are heavily influenced by lira’s sharp appreciation, lower energy prices and the recent tax cuts -- as well as food inflation (-0.17 pp). The latter fell visibly to 25.7% from 29.3% in October, mostly on the back of unprocessed food prices, while non-food inflation, by our calculations, also declined to 20%, y/y, from 23.6% in the previous month (Graph 3). Chiefly reflecting the impact of a stronger lira (Graphs 4-5) and to a lesser extent the tax cuts, annual core inflation (the C-index) fell sharply as well, to 20.7% y/y, from 24.3% in the previous month, reversing the upward trend of the past 7 months, while the pace of core inflation (three-month average of seasonally-adjusted rate) also eased to 2.1% in November, m/m, from 3.7% in October, by our calculations. Despite the better than expected prints, these figures, needless to say, are still too elevated for comfort. Moreover, interestingly enough, the 12-month service inflation moved little in November, remaining broadly flat at...