Turkey’s annual inflation rate rises to 11.77% in August

Turkey’s inflation came in a bit lower than expected at 11.77% year-on-year in August, the country’s national statistical body announced on Thursday.

Last month, annual inflation went up 0.01 percentage points from 11.76% in July, according to the Turkish Statistical Institute (TurkStat).

A Reuters poll predicted annual inflation of 11.91% in the month, while an Anadolu Agency (AA) panel of 18 economists projected the inflation rate will hit 11.88%.

The highest price increase on a yearly basis was recorded in miscellaneous goods and services with 26.99% in August, the data showed.

Prices of health-related goods and services followed at 14.68% and food and nonalcoholic beverages at 13.51%.

Month-on-month, consumer prices rose 0.86% in August, the data showed, compared with the Reuters poll and AA survey forecast of nearly 1%.

The largest consumer price rises in August were in the various good and services component at 5.09%, the data showed. Prices related to transportation, restaurants and hotels rose, while clothing and shoe prices dropped 2.11%.

"In August 2020 within average prices of 418 items in the index, the average prices of 92 items decreased and the average prices of 53 items remained unchanged while the average prices of 273 items increased," the institute added.

According to the official figures, the 12-month average hike in consumer prices was 11.27% as of this August.

The Central Bank of the Republic of Turkey (CBRT) in July raised its year-end inflation forecast to 8.9% from 7.4%. It said the 1.5 percentage-point increase was driven by an upward revision in oil prices and food inflation projections.

The bank ended an easing cycle in June and has since held its key rate at 8.25% but has used backdoor steps to tighten credit and support the Turkish lira.

The AA survey predicts the year-end inflation rate to reach 10.97%, with the lowest estimate at 9.80% and the highest at 13.74%. For year-end inflation, the Reuters poll's median was 11%.

The government's year-end inflation target is 8.5% for 2020, as laid out in its new economic program, announced last September.

On Sunday, Turkey increased its special consumption tax on mid-range and expensive cars, a move which economists said could lift year-end inflation by up to 1%.

The producer price index rose 2.35% month-on-month in August for an annual rise of 11.53%, the data showed.

Over the last decade, the annual inflation saw its lowest level at 3.99% in March 2011, while it peaked at 25.24% in October 2018.

“Despite the favorable base year impact, higher energy prices as well as the FX pass-through impact, especially on core good prices, will carry the annual inflation close to 12%," Özlem Bayraktar Göksen, chief economist at Tacirler Yatırım, said before the data release.

“VAT (value-added tax) cuts on some services (especially on hotel and restaurant prices) are considered to have a downward effect ... However, the prevailing depreciation in the lira would increase the pressure on the core goods prices in August.”

The country in late July announced steep VAT cuts for services and a withholding tax reduction for tradesmen to help the economy weather the coronavirus pandemic.

It cut VAT in accommodation and catering services and cultural activities such as cinema, theater and museum entrance fees from 8% to 1%. The VAT in passenger transportation, wedding organizations, residential maintenance and repair, dry cleaning and tradesmen services such as tailoring was slashed from 18% to 8%, he noted.