Poor inflation print, but unlikely to stop the CBRT

TURKEY - In Brief 03 Feb 2020 by Murat Ucer

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Consumer prices rose by a higher-than-expected 1.4% in January, taking the 12-month rate to 12.2%, up from 11.8% a month earlier. Domestic-PPI inflation also rose to a 12-month rate of 8.8%, up from 7.4% in December (Table 1; Graph 1).Comparing contributions with the same month of the previous year, the drivers of the increase in the 12-month CPI rate were housing, transportation and hospitality services (Graph 2). While food inflation has added a hefty 1.1 percentage points to monthly CPI-inflation, its contribution was higher in the same month of previous year (1.49 pps). Twelve-month food inflation hence fell relatively noticeably in January to around 9%, down from 10.9% in December, thanks to a sharp fall in unprocessed food inflation (Graph 3). Notably, non-food inflation, by our calculations (using the new weights), appears to have increased quite sharply to 13.6% in January, from 12.1% in December (Graph 4).As for the underlying inflation indicators – namely, core and service inflation – stickiness seems to persist. The 12-month core inflation rose only slightly in January -- to 9.9% from 9.8% a month ago -- but it remains rather elevated, so do other core inflation indicators, particularly the B-index, which excludes only the unprocessed food inflation (Table 2; Graph 5). Moreover, by our calculations, three-month average of the seasonally-adjusted monthly core inflation also increased slightly to 0.8% from 0.7% in December, or to an annualized rate of 10.3% from 9.3% (Graph 6), which shows a stickiness of sorts, faring somewhat detached from the lira’s ups and downs (Graph 7).As for the service group, the 12-month service inflation declined slightly to 12.2% i...