Consumer price inflation in Turkey unexpectedly rose last month, according to official data released yesterday. The Turkish Consumer Price Index rose 1.63 percent from March, pushing the annual rate of inflation to 7.91 percent, according to a statement from the Turkish Statistical Institute (TÜİK).
Economists polled in an Anadolu Agency survey on April 30 had predicted inflation would rise 1.34 percent from the previous month and reach an annual rate of 7.60 percent.
The highest monthly increase was 12.30 percent in the clothing and footwear category, followed by a 1.63 percent increase in food and non-alcoholic beverages, 1.35 percent in furnishings and household equipment, 1.27 percent in cafes and restaurants and 1.24 percent in miscellaneous goods and services.
Woman's jacket was the leading item in price increases with 32.91 percent, followed by 28.51 percent increase of potatoes and 24 percent of oranges.
The only monthly decrease was announced in communications with 0.28 percent.
On twelve-month basis, food and non-alcoholic beverages again championed price increases with a rise of 14.36 percent, followed by a 13.34 percent increase in hotels, cafes and restaurants, 9.9 percent increase in miscellaneous goods and services, 8.21 increase in housing and 7.88 percent incresae in education. Food has been named as the chief driver of inflation by Central Bank Governor Erdem Başçı.
In a speech in Istanbul on April 30, Başçı said: "Rising food prices put a restraint on disinflation. In this period, oil prices and TL-denominated import prices led to cost pressures on inflation. With accommodative weather conditions and possible policy measures, food inflation may have ample room to decline."
Başçı had said that core inflation had been declining for the first quarter of the year. However, core inflation is now up 2.03 percent, according to Monday's statement.
"This month we saw an increase in core inflation from the previous month, which is a sign that core inflation once more started to push up headline inflation," Adnan Çekcen, a financial analyst at Destek Securities in Istanbul, said.
Economist Attila Yeşilada of Global Source Partners, said the Turkish economy was not benefitting from low oil prices.
"With this latest reading, it's clear that core inflation is now increasing and we forecast it to reach nearly the same levels as headline inflation," he said. "This means that the currency pass-through [the effect of the Turkish lira's decline against the dollar and the euro] is an obstacle to any decline in inflation."
Some analysts, however, think a reduction of food inflation is possible and that it will help to speed a decline in overall inflation. "Food is the last obstacle in front of Turkey's disinflation process," Bora Tamer Yılmaz, an economist with Ziraat Securities in Istanbul, said.
"That's beyond the Central Bank's direct control. The newly established Food Commission has commenced its operations and can help curb food prices with structural policies and through policy coordination. Since food inflation has a larger variance compared to the headline inflation figure, any improvement in food prices will affect the headline quite sharply and suddenly.
"One can expect food prices to revert in summer months, on the back of better climate in winter months and structural initiatives by the food committee. As a specific case, due to supply shortage, potato prices increased by 28.5 percent in April."
The Food and Agricultural Products Markets Monitoring and Evaluation Committee, founded in December, met for the first time on April 7.
Inflation figures are closely watched in Turkey as central bank officials have said they would maintain a tight monetary policy until there are clear signs of improvement in the inflation outlook.
"If inflation surpasses the 8 percent mark, anticipation for a more hawkish policy from the central bank will be intensified and they may skip one more policy meeting without cutting rates," Çekcen said.
He agreed that the inflation rise could pressure the Turkish lira lower against the dollar. Başçı has said the central bank will maintain a "cautious monetary policy" and use credit control measures to tighten liquidity, a strategy that is aimed at supporting the value of the lira.
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