On the CBRT's Inflation Report

TURKEY - In Brief 30 Apr 2018 by Murat Ucer

---

The CBRT has released this year's second Inflation Report today. Here are some highlights:The 2018 year-end inflation forecast was revised up by 0.5 percentage point to 8.4% (midpoint of a range between 7.2% and 9.6%) from 7.9% previously, while the 2019 year-end forecast was kept at 6.5% (midpoint of a range between 4.7% and 8.3%). Despite the revision, the CBRT’s end-2018 forecast remains notably lower than the latest (April) CBRT survey of 10.1%, and our forecast of 10.3%, which is also the case for 2019.The Bank’s lower forecasts, among other things, seem to have to do with the CBRT’s relatively benign food price inflation forecast of 7% for both years. The CBRT partly attributes this to the “ongoing” efforts of the “famous” and somewhat mysterious (because we don’t exactly know what they are actually doing) “Food Committee”.Most of the 0.5 percentage point upward revision to the 2018 inflation forecast came from the upward revision to the lira-denominated import prices (0.4 points), which is mainly about a weaker lira effect (because dollar-based import prices are lower in fact), while strong domestic demand (and a larger positive output gap consequently) led to another 0.1 point upward revision. The CBRT revised the output gap estimate for Q1 to 1.4%, up from 0.8%, indicating a stronger economy than foreseen in January. (Slide 17 herein Governor’s presentation provides the full set of assumptions, while the overview chapter herebroadly gives the text of his speech.)In the press conference, Governor Cetinkaya acknowledged that the improvement in core inflation has been limited and reiterated that further monetary tightening will be delivered, if needed. Regarding ...