Turkey's inflation hits 1.16 pct in July, high above expectations, reaches 8.79 pct on annual basis

Published 03.08.2016 10:07
Updated 03.08.2016 15:25

Turkey's consumer price index (CPI) increased by 1.16 percent in June, high above the forecast, while the producer price index increased by 0.21 percent with annual inflation up at 8.79 percent.

Prices rose by 4.84 percent compared to December 2015 and 7.91 percent on twelve months moving averages basis.

Gizmen Nalbantlı, an Istanbul-based analyst at Işık FX, said: "Inflation rose, both on a monthly and yearly basis, in July to a six-month high. The effect of the minimum wage level raise and the depreciation of the local currency will probably lead to inflation of 8 percent by December 2016." Finansbank said in a client note that "The rise is mainly driven by the increase in unprocessed food and cigarette prices. Looking ahead, food inflation may remain high due to the removal of Russia's sanctions on Turkey's exports." Moreover, if it sustains, the recent currency depreciation will create fresh upside pressures on consumer prices and deteriorate the main trend of the core indicator, Finansbank added.

Central Bank of the Republic of Turkey (CBRT) Governor Murat Çetinkaya said on July 26 that the inflation rate would fluctuate between 6.6 percent and 8.4 percent throughout 2016. "The midpoint in 2016 will be 7.5 percent and 6 percent in 2017," Çetinkaya said.

The CBRT had cut the overnight lending rate by 25 basis points to 8.75 percent while it kept its benchmark one-week repo rate on hold on July 19 after a failed coup attempt on July 15.

In its quarterly inflation report released on July 26, the bank said inflation was higher in the second quarter of the year due to energy prices and food prices. The Turkish lira lost its value against the dollar after inflation data, and was trading at 0.65 percent lower, at 3.01 per dollar as of 1:30 a.m. Istanbul time.

The highest monthly increase was in alcoholic beverages and tobacco category with 7.05 percent. Prices increased in food and non-alcoholic beverages category by 3.15 percent, communications by 1.38 percent, miscellaneous goods and services by 1.31 percent and hotels, cafes and restaurants by 1.22 percent.

The only monthly decrease was in clothing and footwear category with 4.14 percent.

The highest annual increase was in alcoholic beverages and tobacco category with 19.36 percent.

Miscellaneous goods and services, health, hotels, cafes and restaurants, food and non-alcoholic beverages were the other main groups where high annual increases were realized with respective price increases of 12.68, 10.58, 9.96 and 9.69 percent.

In July 2016, out of the total 417 items included in the index, average prices of 59 items remained unchanged while average prices of 256 items increased and average prices of 102 items decreased.

According to the government's Medium-Term Economic Program, inflation is to reach 7.5 percent by the end of this year.

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